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 1^st 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 1^st June of the financial year to reduce the impact of indexation.

Related blogs:

Self-Education Expenses

Author: Kurtis Maclennan
Email: kurtis@faj.com.au

 

 

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: stacey@faj.com.au

 

 

Determining whether you are running a business or a hobby can be difficult. Generally, a hobby is an activity performed in your spare time with the single purpose of enjoyment.  If, however, the hobby earns income and begins to make a profit, should it be considered a business?

Whether a taxpayer carries on or business is not defined by law, but is a question of fact and degree. Unfortunately, there is no single factor when making this determination, but the following points need to be considered:

1. Do you intend to be in business?
2. Have you decided to operate in a business-like manner? This may include an application for a business name or ABN, writing a business plan or opening a bank account.
3. Do you intend or genuinely believe you will make a profit from your activities?
4. Is the activity repeated and continuous?
5. Have you obtained relevant licences and/or permits?
6. Are you advertising your goods and services to the public?
7. Do you have a business premises?

If the answer is yes to many of the above, then the likelihood is that you are considered a business for income tax purposes, which of course comes with certain obligations.

There are different types of business entities to choose from, and deciding which best suits your situation will determine what you need to report and how you lodge a tax return. There may also be restrictions on your ability to utilise any losses made, or offset these against other personal income.

As a business you are required to record all items of income and expenditure and regardless of whether a profit has been made, report this to the Australian Taxation Office by lodging an income tax return.

Businesses can be registered as Sole traders, Partnerships, Companies or through Trusts.

Your accountant will be happy to discuss your requirements with you, and together determine which entity best suits you and guide you through all ATO and business requirements.

Further references:

https://business.gov.au/planning/new-businesses/difference-between-a-business-and-a-hobby
https://www.ato.gov.au/businesses-and-organisations/starting-registering-or-closing-a-business/starting-your-own-business/are-you-in-business

Other related blogs:

Content creators – Income and GST considerations
What is a non commercial loss?

Author: Jessica Jones
Email: jessicaj@faj.com.au

Considering the modernity of digital content creation as an income-producing activity, it’s not unusual to encounter uncertainty among content creators regarding their tax obligations. In addition to its unprecedented nature, confusion arises due to the fact content creation is a rather unique source of income, as portrayed by the many ways a creator can generate profits.

In addition to the standard, monetary method of producing income (etc. payments from social media platforms, advertisements, and appearances), creators are also required to report non-monetary income received during the financial year, including but not limited to gifts of assets and/or experiences such as…

• Cosmetics, accessories, gaming consoles
• Vacations i.e., flights, accommodation
• Admission fees to events
• Cryptocurrency and shares

As income tax returns are numerical in nature, the Australian Taxation Office (ATO) expects content creators to appraise all non-monetary gifts at their market value when preparing their returns. For instance, products received free of charge by a content creator, are expected to be reported as income in the creator’s tax return at their retail price. Alternatively, products may be offered to content creators at a discounted rate, in which case the creator will only be obligated to pay tax on the benefit received from the discount.

Therefore, it’s prudent for content creators to exercise caution when accepting gifts of high market value, as the resulting tax liability may be harsh and without adequate cashflow to cover the liability creators may find themselves in a difficult situation…

Another important tax obligation for content creators to consider is goods and services tax (GST). GST is an additional tax of 10% charged on certain goods and services consumed or sold in Australia. Taxpayers in business are obligated to pay and report GST if their annual GST turnover exceeds $75,000. The annual GST turnover is calculated by totalling a taxpayer’s income (monetary and non-monetary) over a 12-month period and subtracting any corresponding GST on applicable income. It should be noted that non-monetary income is subject to GST and should be calculated based on the accepted market value. For example, if a gifted product’s retail value was $320, the creator should report GST on sales of $29.09 to the ATO.

Due to the global nature of the internet, content creators often source income from foreign advocates and supporters. Therefore, as the creator’s goods and services are not ‘consumed’ in Australia, its unlikely the income will be subject to GST. If a content creator cannot distinguish between foreign or Australian income, the income is taken to be taxable and subject to GST as per the ATO’s ruling.

Although foreign income is exempt from GST, it’ll still contribute to the $75,000 threshold when calculating the annual GST turnover. Content creators exceeding the $75,000 annual GST turnover threshold should register for GST immediately, and depending on their expected turnover, will be required to report their GST liabilities to the ATO either annually, quarterly, or monthly through Business Activity Statements (BAS).

We urge any content creators who are unsure of their tax obligations to please contact our office to gain assistance and peace of mind from any one of our friendly tax accountants!

Other related blogs:

 

Author: Amy Murphy
Email: amy@faj.com.au

 

You have just purchased yourself a shiny new Tesla in the hopes of never again having to spend over $2 per litre of fuel. Now what? What deductions are you entitled to for this electric vehicle?

If you are an employee or a sole trader, you can either make your claim using the cents per kilometre method or the logbook method.

Cents per Kilometre Method

The cents per kilometre method is the easiest to calculate. You just claim the work distance travelled (in km) for the year up to a maximum of 5000km and multiply it by the ATO set rate for the relevant year. For example, in the 2023 financial year the ATO have given a set rate of 78 cents per km meaning you can claim a maximum deduction of $3,900 for the operating expenses of your electric vehicle for the year. When it comes to keeping records, written receipts are not required however you should still have reasonable evidence to prove how you have calculated distance claimed.

Logbook Method

The logbook method allows you to claim a deduction for your actual vehicle costs. Under this method you are required to keep a record of all vehicle expenses incurred, the total is then apportioned by your logbook percentage to calculate your deduction.

To claim under this method, you first need to keep a valid logbook.

Step one is to record your opening odometer right before starting your logbook.

Step two is to record all your work-related travel. This must include, travel date, details of travel, starting odometer, closing odometer and a total KMs travelled. You will need to do this for 12 continuous weeks.

Step three: Work out your logbook percentage.  To calculate the percentage, you will need to take a final reading of your odometer at the end of the 12-week period. We should now have 3 values. The odometer at the start and end of the 12-week period and the total work-related distance travelled. From this we can calculate the work-related percentage by dividing the work-related distance by the total distance travelled during the 12-week period.

Now you have a logbook you can claim the work related percentage of vehicle costs such as;

• Fuel Costs (see below for Electric Vehicle rules)
• Annual Servicing Fees
• Any extra repairs and maintenance
• Registration
• Insurance
• Interest on the vehicle’s loan
• Depreciation (see below)

The biggest difference between traditional vehicles and electrical vehicles is that EV’s don’t require traditional fuels so how do you work out the charging costs

Electric Vehicle Recharge Costs

When it comes to claiming the costs to recharge.  If you recharge your EV from a commercial charging station, then you just keep the receipts and apply the logbook % to the total for the year identical to if you were to have fuel receipts.

However, if you charge from home, you will find that it is very difficult to calculate portion of your electricity bill is from charging your EV at home since the costs are lumped in with your household electricity costs. Because of this the ATO have provided a shortcut method to easily calculate the running costs of the vehicle. Like the cents per kilometre method the ATO provides a rate of 4.2 cents per kilometre travelled. To calculate this, you would grab your odometer reading at the start of the financial and year and another at the end of the financial year. Calculate the distance travelled and multiply by 4.2 cents. The final thing is to apply the logbook percentage to get your final figure.

When opting to use this ATO shortcut method you need to be certain that your vehicle is eligible. The shortcut method can be used for zero emission vehicles, this means that hybrid vehicles with an internal combustion engine that uses liquid fuel are not eligible for the method.

Car Cost Limit and Depreciation

If you are claiming your motor vehicle expenses using the logbook method, you can claim the work-related portion of the vehicle up to the car cost limit for that year. From July 2022 to June 2023 the limit is $64,741. For example, the vehicle you purchased was $75,000. When calculating the decline in value for the vehicle you would first have to reduce the cost of the vehicle to $64,741.

Related blogs:

Tax consequences of buying a work vehicle

Author: Matthew Prawirohardjo
Email: matthewp@faj.com.au