Disposing of a Motor Vehicle

In this blog we will consider the tax implications involved in disposing of a motor vehicle both privately and within a business. Disposal does not only include the sale of a motor vehicle, but also trading in the vehicle or that vehicle being written off as part of an insurance claim.

‘Purchasing or rental’ conception with toy car and australian dollars

Generally, if a motor vehicle is sold by an individual and it has not been used for business purposes, this transaction is regarded as a private sale and is exempt from capital gains tax and income tax in the hands of the taxpayer.

These rules change when the motor vehicle has been used completely or partially for business-related purposes. When a business-related vehicle is disposed of in one of the above scenarios, it must be included in the assessable income of the business.

On disposal a balancing adjustment will be made, whereby, the difference between the disposal value of the car and the written down value of the car is calculated. The written down value is the portion of the car that has not been depreciated by the time of disposal. This can be calculated with the assistance of your accountant.

The use of accelerated depreciation rules often creates an unexpected issue for businesses. For example, if a vehicle cost $40,000 and was written off completely under temporary full expensing, then tax must be paid on the entire sale value as the written down value would be $0 creating a much larger profit on sale than if it had only been partially depreciated.

Another thing to consider is whether GST is payable on the disposal. If your business is registered for GST, then the sale of a motor vehicle used for business-related purposes will likely be regarded as a taxable sale. GST will need to be calculated on the sale and remitted to the Australian Taxation Office. This will also be the case even if the motor vehicle was purchased prior to the introduction of GST, being 1st July 2000 and/or sold to a non-business individual.

Any taxable amounts or GST payable should only be calculated on the business use percentage of a vehicle. As an example, if the motor vehicle was only used for business-related purposes 80% of the time (as per a valid logbook), only 80% of the disposal value would be taxable and GST would be calculated on the same 80%. A balancing adjustment may also be required if the vehicles business use changed or ceased during the ownership period.

Further complications come when a motor vehicle that has been disposed of, was purchased above the luxury car tax limit. Further information regarding this can be found here or by consulting your accountant. Special rules also apply when disposing of a motor vehicle to an associate for under market value and disposal of motor vehicles by charities.

The team at Francis A Jones will be happy to assist you with any queries that you have regarding this matter.

Related blogs

Claiming motor vehicle expenses using logbook method
Tax consequences of buying a work vehicle

Author: Joanne Humphreys
Email: [email protected]

 

 

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Eligibility for the Small Business CGT Concessions

The Small Business CGT (Capital Gains Tax) Concessions are designed to provide tax relief to the owners of small businesses when they sell shares in a business, goodwill, or property. If a small business can access these concessions, then it makes it easier for the business owners to retire from, or re-structure their business. There are certain conditions that a business and the individual must meet to access the concessions, briefly outlined below.

  1. Small Business Entity Test

Firstly, the business must be a small business entity, meaning that the business must have an aggregated turnover of less than $2 million in the year the concession is claimed. Aggregated turnover is the total income of the business, and any connected entities or affiliates.

  1. Active Asset Test

Secondly, the asset being sold must be an active asset, meaning that the asset must be used while carrying on a business. Examples may include, machinery or equipment, vehicles, shares in a small business or goodwill. If the asset is held primarily for investment purposes (e.g., rental property), it won’t meet this test.

  1. Significant Individual Test

Thirdly, the individual claiming the CGT concession must satisfy the significant individual test. This means the individual must have an ownership interest in the business, usually at least 20%, either directly or through entities such as a trust or company. This ensures that the test benefits those with a material stake in the business, rather than passive investors.

If the above conditions have been met, then the CGT concessions are able to be accessed, provided they meet the further requirements related to the concession they wish to use. Here is a look at the available concessions:

The 15-Year Exemption

The most beneficial/desired concession is the 15-year exemption, which allows the full CGT liability to be waived if the business has been owned for at least 15 years and the owner is aged 55 or older.

50% Active Asset Reduction

The 50% active asset reduction effectively reduces the capital gains, and the corresponding tax payable by 50%. This concession can be used in conjunction with other concessions, such as the retirement exemption or the rollover relief, if you qualify.

Retirement Exemption

The retirement exemption provides a CGT exemption up to a lifetime limit of $500,000, provided that the money is being used to fund retirement. If the individual in question is under the age of 55, the amount must be paid into a super fund.

Rollover Relief

The rollover relief concession provides a deferral from paying CGT, provided that a replacement asset is purchased within two years. Tax will be paid when the replacement asset is sold or disposed of.

The Small Business CGT Concessions can be an important tool to reduce tax liabilities when selling a business or its assets. However, understanding what is required to access these concessions, and when they are available to you is essential to maximise the tax benefits. The Small Business CGT Concession rules can be complex, especially where trust and companies are involved, so it’s important that you get some advice before making any decisions.

Author: Molly Ingham
Email: [email protected]

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Starting a new business? Here’s what you need to know about tax

Starting a new business can be an exciting but also daunting time for individuals apprehensive of their newfound tax obligations and responsibilities.

For instance, an important responsibility of individuals working for themselves is to calculate, withhold and remit tax on their assessable income to the Australian Taxation Office (ATO), whereas employees can rely on their employers to do so.

Businesses report and pay their estimated tax obligations during a year through the ATO’s pay as you go instalment system, which are referred to as PAYG tax instalments. Depending on a business’s income threshold, the instalments will be reported annually, quarterly or monthly. Taxpayers can either voluntarily enter the ATO’s PAYG instalment system, or alternatively will be automatically entered into the system where a previously lodged tax return’s liability exceeds certain thresholds.

Another important tax consideration for a new business is goods and services tax, which is commonly abbreviated to GST. Businesses who earn or expect to earn gross income of $75,000 or more in a year must register for GST. Again, GST will be reported to the ATO annually, quarterly or monthly depending on income thresholds. GST is calculated as 1/11th of your applicable business income and expenses.

The task of calculating the correct tax and GST to report to the ATO each period can often prove difficult and time consuming, especially where a business’s profit fluctuates. The easiest way to stay on top of these tax obligations is to maintain an appropriate record-keeping system such as accounting files like Xero or MYOB. This is due to the file’s ability to produce reports such as GST reconciliations and profit and losses, which will evidently present the relevant information for ATO reporting.

In addition to the reporting benefits of an accounting file, the software will often offer other business-related services, such as their own invoicing and payroll systems. The benefit of amalgamating all aspects of your business into one system should not be understated, as it will likely save yourself time and perhaps accounting fees.

There are of course many other factors to consider before starting your business, however with regard to taxation, the aforementioned points are the most imperative. To read on other non-tax related considerations please see the following checklist from the Australian Government https://business.gov.au/planning/new-businesses/starting-a-business-checklist

Other related blogs:

Is it a business or a hobby?
How do I register a business name?

Author: Amy Murphy
Email: [email protected]

 

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Rotation of auditors

As a not for profit organisation, your credibility rests on your reputation for integrity.  Transparency and rigour in all your financial dealings is crucial to maintaining your good standing in the community and amongst donors. Good governance can be one of your most productive assets.

That’s why it’s a good idea to have a rotation of auditors every five to seven years.

The Companies Act 2013 specifies that publicly listed companies and certain categories of private companies must rotate their auditors after a period of ten consecutive years – an indication of the importance the legislature places on the concept of rotation.

The thinking behind this is that after a period of years performing audits for any company or organisation, it’s possible that the auditor will begin to find the task routine. Certain aspects of the audit may seem familiar, and therefore appear to merit less attention. Regardless of the professionalism and commitment of the auditor, changes can be missed, and mistakes can be made.

Rotating your auditor after a period is not a reflection on them, but a sign of your commitment to rigour and transparency. A new auditor can bring a fresh perspective to the task, and strengthen its independent nature.

Consider the relationship you have with your current auditor, and the length of time that auditor has been completing the same task. Would your organisation benefit from a brand new set of eyes and a truly objective point of view? Could your current auditor’s independence and objectivity be compromised by the long-standing relationship? Is your current auditor adding value to the organisation through the audit process?

If you would like to discuss your organisation’s auditing needs, or have any questions on the benefits of audit rotation please call me on 9335 5211 or email [email protected].

Related blogs:

NFP annual reporting requirements

Author: Daniel Papaphotis
Email: [email protected]

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NFP annual reporting requirements

Starting June 30, 2024, the Australian Taxation Office (ATO) has introduced new NFP annual reporting requirements that will affect all not-for-profit organisations (NFP). This new mandate requires NFP’s to annually confirm their eligibility for tax exemption status using a specific self-assessment tool provided by the ATO.

Understanding and adapting to these changes can be challenging, especially with the technical aspects of tax laws and compliance demands. To help clubs manage these new requirements efficiently, registered company auditors are now offering their expertise.

Francis A Jones is equipped to assist NFP’s with the following tailored services:

  • Assistance with the Self-Assessment Tool: We will help ensure that your organisation correctly completes and submits the required information to maintain its tax-exempt status.
  • Lodgement Services: We can take care of documentation filing with the ATO, ensuring accuracy and timeliness.
  • Guidance on Self-Review: We offer advice and support to help your club understand the new NFP annual reporting requirements and establish best practices for ongoing compliance.

These new ATO reporting requirements are crucial for NFP’s to understand and implement. By engaging a professional auditor, the NFP can simplify this process and ensure that your NFP remains focused on its primary activities and community contributions, rather than getting bogged down with tax compliance issues.

For further information or to arrange a consultation, NFP’s are encouraged to get in touch. Let us help you navigate these new requirements, making the transition as seamless as possible and allowing you to keep your attention on what matters most — your members and your community.

If you would like to discuss your auditing needs in more detail, please contact Daniel and the FAJ audit team directly on 9335 5211 or at [email protected].

Author: Daniel Papaphotis
Email: [email protected]

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What is PSI and what do I need to know?

Personal Services Income, or PSI for short, arises when an individual earning income other than employment income is deemed to be primarily using their personal skills and efforts as an to derive the income, rather than through the use of assets or products. More specifically, if 50% or more of a person’s business income for the financial year is earned in relation to the individuals skills or efforts, then all of the income is deemed as PSI and will be subject to the tax rules relating to this. In other words, if 50% or less of the business income derived during the financial year is due to the use of the business’s assets and structure or the production and sale of goods, then the income will not be deemed as PSI and will benefit from the taxable income rules relating to a business.

By way of example, a computer programmer is likely to make income mostly from their skills and would earn PSI. An owner/driver of a truck is more likely to earn income from the use of the asset – therefore not PSI.

When determining whether income is deemed to be PSI, it is important to note that companies, partnerships and trusts who earn PSI indirectly through the skills and efforts of individuals are also subject to similar rules and are known as “Personal Service Entities.” Refer to the below link for further details on the steps involved in determining whether your business is considered to be a PSE:

https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income/working-out-if-the-psi-rules-apply/work-out-if-the-psi-rules-apply-to-you

Occupational fields that are more likely to derive PSI income include financial professionals, consultants, engineers, construction and trade workers, and medical practitioners. Income earned under a salary and wages agreement with an employer are not considered PSI, along with the supply and sale of goods. Following this, if the business income is derived specifically from the use of assets, such as a forklift operator hiring out his services along with the forklift hire where the hire of the forklift derives majority of the income from the contract, then the income is not deemed to be PSI. Finally, factors relating to the business structure, such as the number of employees, operation size and activity nature, can be used to determine whether the income is truly being derived in a “business nature” and, therefore, whether the PSI rules would apply.

If your income is determined to be PSI, it is important to note the effects that this will have on your income tax return. Firstly, you are not able to claim a deduction for certain expenses that might otherwise be allowable including rent, mortgage interest, council rates and land tax of your residence, along with other typical business deductions, such as payments to or for associates who perform non-principle work and entertainment.  If your business meets the conditions to be considered as a Personal Service Business (PSB), then your claimable deductions will not be limited to the PSI rules. For further details on how to determine whether your business is considered a PSB, please follow the below link

https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/personal-services-income/working-out-if-the-psi-rules-apply/self-assessing-as-a-psb

PSI, whether earned by an individual or through a PSB, should be assessed for income tax solely in the name of the individual.

Related blogs:

Personal Services Income (PSI)
The sharing economy and taxation

Author: Isabella Moncrieff
Email: [email protected]

 

 

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Student Loans

Here’s what you need to know about your student loan – tax edition

For many Australians the HECS-HELP scheme allows you to defer the cost of your higher education until you start earning a stable income. It is often not thought about while you complete your study. However, if you have now entered the work force it can be beneficial to know the requirement to pay this loan back and how it is administered.

How the repayments are calculated?

The repayment of your HELP loan is compulsory once your “repayment income” is over the relevant threshold. For the 2023-24 financial year the first threshold is from $51,550 to $57,729. If your repayment income is between this threshold, 1% of your income goes towards repaying your HELP debt.

For example, if you earned $55,000 of repayment income in the 2023-24 financial year, $550 would be repaid off your overall loan. As your repayment income increases, the repayment percentage required also increases.

You can click here to determine your relevant repayment percentage.

Note that the repayment rate is not based on taxable income, it is based on “repayment income”. Repayment income is calculated by adding your taxable income, net investment losses, reportable fringe benefits, reportable super contributions and exempt foreign employment income for the financial year.

How are repayments made?

HELP repayments are made through the tax system and the repayment automatically occurs once you lodge your tax return. Although you may see a HELP repayment amount coming out each pay period, this is not being paid directly against your HELP debt. It is being paid to the ATO as part of your overall tax withheld. Only once you lodge your tax return will the ATO assess your repayment income and make the necessary HELP repayment for the financial year. Therefore, you will not see your HELP debt decreasing throughout the year but rather after your return is lodged.

Employers should withhold additional tax from your salary each pay period to cover the HELP repayments. When you start a new job, you are required to complete a Tax File Number (TFN) declaration form which includes an option to notify your employer that you have a HELP debt. If you select “yes” your employer will then withhold the appropriate amount from your pay so you don’t get a nasty HELP bill when it comes time to lodge your tax return.

If you are an ABN income earner you will not have an employer to withhold tax on your behalf. Therefore, it is important to keep in mind that you may not only have tax to pay at the end of the financial year but also potentially a HELP repayment as well. Speak to your accountant on how much you may need to budget if you are unsure.

Why is my HELP debt increasing?

Although HELP is essentially an interest free loan, your outstanding HELP balance is adjusted by indexation every year on the 1st of June. The indexation rate (or the rate your loan will increase) is based on the Consumer Price Index (CPI) in order to keep the debt in line with inflation.

You can choose to make voluntary repayments against your HELP loan if you wish. However, these additional repayments are non-refundable and not tax deductible. If you decide to make a voluntary repayment, this should ideally be made prior to the 1st June of the financial year to reduce the impact of indexation.

Related blogs:

Self-Education Expenses

Author: Kurtis Maclennan
Email: [email protected]

 

 

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Boost your super before year end

As the end of another the financial year approaches, it’s time to consider strategies to boost your super. Whether you’re planning for retirement or simply aiming to secure your financial future, taking action before the financial year concludes may have significant benefits. Here are some last-minute tips to boost your super, either for yourself or your spouse:

  1. Extra Contributions: One of the simplest ways to increase super is by making additional contributions from your savings. These contributions can be made as concessional (before-tax) contributions or as non-concessional (after-tax) contributions. Be mindful of annual contribution caps to avoid penalties.
  2. Salary Sacrifice: You can speak with your employer about setting up a salary sacrifice arrangement. This involves redirecting a portion of your pre-tax salary into your super fund. Not only does this reduce your taxable income, but it also boosts your superannuation savings over time.
  3. Spousal Contributions: If your spouse earns less than $40,000 per year or isn’t working, you may be eligible for a tax offset by making contributions to their super fund. This can be a tax-effective strategy to build retirement savings as well as support your partner’s financial security.

By taking advantage of these last-minute tips, you can give your superannuation a significant boost before the end of the financial year. Planning ahead and making informed decisions now can pave the way for a more secure and comfortable retirement in the future.

This blog is provided as an information service only and therefore does not constitute, and should not be relied upon as financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs, and you will need to make your own decision about how to proceed. Alternatively, for financial product advice that takes account of your personal objectives, financial situation or needs, you should consider seeking financial advice from a licenced financial advisor.

Related blogs:

New Super contribution limits
What happens if I make excess contributions to super?
How can you access your super?

Author: Jesper Lim
Email: [email protected]

 

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What’s new in FBT?

With the Fringe Benefit Tax year-end upon us we thought we’d share with you what’s new in FBT.

Employer cars repaired at a workshop.

Does an employer provide a car fringe benefit to an employee on a day which the car is garaged at a mechanic’s workshop for repair?

ATO factsheet, Fringe Benefits Tax QC71121 has confirmed that a car being held at a workshop for “extensive repairs” is not being applied for private use and is not held by the provider during these periods, therefore no fringe benefit will occur in relation to these days.

What does this mean for me?

As employers, the number of days provided can be reduced if using the statutory method or if using the operating cost method, any costs relating to the vehicle during the repair period can be excluded. This includes a proportion of annual expenses such as insurance and registration.

Extensive repairs relate to where the car is being repaired after an accident or where the car is currently unroadworthy and housed at the mechanic.  This concession does not extend to minor repairs or routing servicing as the user still has the ability to cancel the repairs and drive the car away.

Logbook requirement

The ATO has confirmed that the operating cost method may still be used where a valid logbook has not been maintained for the car.  A private percentage of 100% can be used to compare with the statutory formula and the lower may be used.  This may produce a lower FBT liability if the car was purchased a number of years ago or the running costs of the car are low.

FBT Trap – cars with signage

Many businesses now provide cars with custom signage, allowing the business to be advertised when the car is being driven or in a public area.  Confusion stems relating to whether this is considered advertising and a business use of 100% can be used in relation to FBT.  ATO have updated guidance confirming that private use is “everything else other than the exclusive course of working, running a business or otherwise earning income.”  Therefore these cars have a dual purpose and will still be available for private use under the definition in relation to FBT.

Electric Cars & Plug-in Hybrids

Qualifying electric cars are exempt from FBT from 1 July 2022. This is a huge exemption and benefit for employers in terms of FBT, but don’t get too excited too quickly.  Whilst this is a great development, the compliance requirements surrounding these vehicles remain.  Employers are still required to include the value of an exempt FBT electric car when determining if an employee has a reportable fringe benefits amount to be declared on their payment summary.

The ATO has released PCG 2024/2 to provide a short cut method in determining the cost of charging an electric car at home, being:

Electric vehicle home charging rate x total number of kilometres travelled by the car in the FBT year.

Note that:

  • The rate for 2023 and later years is 4.20 cents per kilometre
  • Employers must disregard any costs at a commercial charging station
  • Plug in hybrids cannot use this method
  • This method is not compulsory

Whilst electricity costs are a car expenses the provision of the electric vehicle charging station itself will be regarded as an expense payment benefit and is subject to FBT.

Crackdown on utes and other work-horse vehicles

Eligible vehicles are exempt from FBT if regarded as a work-horse vehicles and any private use is limited to ‘work-related travel or is ‘minor, irregular and infrequent’.

But what is limited private use?

  • Travel to and from home
  • Travel incidental to employment related duties (eg. Stopping for coffee for a business meeting)
  • Minor, irregular and infrequent.

ATO’s PCG 2018/3 guides that total private use of the vehicle (other than home to work) in the FBT year should be no more than 1,000kms with no single private journey exceeding 200kms.

The ATO data matching program has been extended to monitor registration records until the end of 2025 regarding makes, models, engine size and carrying capacity of vehicles.

Whilst special records are not required to ensure eligibility of the above.  It is advised that odometer records are kept to ensure that usage is within the expected private use between home and work travel during the period.

Any vehicles not meeting this criteria will have a residual fringe benefit.

Other related blogs:

Tax consequences of buying a work vehicle
Deductibility of electric vehicle used for work
Claiming vehicle expenses using a log book method

Author: Stacey Walker
Email: [email protected]

 

 

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Capital gains implications of inheriting property

Inheriting property can be quite an emotional and stressful experience, which many people will encounter at some point in their life. Whether the property is a family home or investment property, understanding the tax implications for such a valuable asset can be crucial in making sure it is handled effectively.

Receiving property doesn’t trigger a CGT (Capital Gains Tax) event, this occurs once the property is disposed of, either being sold, transferred or gifted. When the property is disposed of, the capital gain or loss is generally calculated by comparing the cost base and the selling price, although there are some CGT exemptions and other factors that can affect the end result.

Calculating the Cost Base

The cost base of an inherited property is affected by whether the property was the deceased’s main residence for the whole period of ownership, and periods the property was rented whether for the whole time, or for a portion of ownership.

If the property was the deceased’s main residence for the whole period of ownership, the cost base becomes the market value at the date of death, based on a valuation by a licensed valuer. The property can then be sold free of CGT implications if one of the following are satisfied,

  1. The property is sold within 2 years of the death, even if it was rented in the meantime.
  2. The property is used only as a main residence by one of the following, (be mindful that a person can usually only have one main residence at a time):
    1. A spouse of the deceased immediately prior to death
    2. A person who was offered to live at the property as part of the will
    3. A beneficiary

If the property was not the deceased’s main residence for the whole period of ownership, there will be CGT implications that need to be considered. The cost base for the inherited property can vary depending on when the deceased purchased the property,

  1. Prior to 20 September 1985 – market value at date of death
  2. After 20 September 1985 – the cost base of the deceased will be inherited

Partial exemptions may apply for properties inherited that weren’t a main residence. This suggests that you can apportion the gain by the non-main residence days divided by the total ownership days.

The ATO provides a checklist and step by step walk through which might assist with your own personal circumstances.

Given the complexity around the tax laws for inherited property, it is advisable to seek professional help from your accountant.

Related blogs:

Tax when an individual passes away

Author: Caleb Datson
Email: [email protected]

 

 

 

 

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