The 2018 federal budget introduced changes to depreciation deductions in relation to residential rental properties. These changes aim to limit the ability to claim the depreciation deduction to the investor who initially purchased the asset.

Previously property investors could claim expenses for depreciation of certain items in a rental property, regardless of whether they were purchased new or second-hand.

From 1 July 2017 you cannot claim depreciation of second-hand equipment in residential rental properties if it was acquired on or after 7:30 pm on 9 May 2017. This means that if you entered into a contract to purchase a property prior to 9 May 2017, as per the previous rules you can continue to claim depreciation deductions on any pre-existing assets in that property. However if purchased after the date, you must have purchased the item new and not second-hand to be able to claim depreciation on the asset.

Additionally, you cannot claim depreciation on items installed on or after 1 July 2017 if they has ever been used for a private purpose. Therefore properties which have been lived in and turned into an investment property by their owners before 1 July 2017 are not affected, and owners can continue to claim plant and equipment depreciation.

Plant and equipment items are assets that can normally be easily removed or relocated, such as floor coverings, appliances and air-conditioning.

Any investor who purchases a brand new property can continue to claim depreciation for plant and equipment items as normal. Similarly depreciation can still be claimed on eligible new assets regardless of when the property was purchased.

The legislation states that these changes will not affect depreciation of plant and equipment for non-residential/commercial properties. The changes will also not apply to assets held in residential properties owned by an entity carrying on a business of property investing, or an excluded entity being a corporate tax entity, superannuation plans other than a Self-Managed Super Fund, public unit trust, or a managed investment trust.

The changes will not affect the ability to claim capital works deductions, which are the deductions on fixed items and structural improvements such as new kitchens and bathrooms.

However when purchasing second-hand assets, the cost of the plant will form part of the cost base of the property disposed and by extension will reduce the capital gain tax liability upon sale.

Other related blogs:

• Changes to rental property deductions
• Less known rental deductions

 

Author: Danielle Pomersbach
Email: danielle@faj.com.au

 

 

Payroll tax is one of those taxes that can slip under the radar of small businesses. Employers don’t need to pay this tax until their wages reaches a threshold, and then the onus is on the business to register and pay the tax.

Payroll tax is a state and territory tax based on the taxable wages you pay as an employer. Types of payments defined as ‘taxable wages’ include salaries and wages, allowances, fringe benefits and super contributions.  A common misconception is that contractor payments are not included in taxable wages. However, if there is an employee/employer relationship that exists between a contractor and their client then the contractor payments may be included. Generally, if the contractor is providing predominantly labour only and is being paid an hourly rate, it is likely that these payments will be considered taxable wages and will be assessed for payroll tax.

Not all businesses with employees are required to pay payroll tax. There will only be a payroll tax liability where taxable wages exceed the relevant thresholds in the state or territory you are employing from (or in some cases where your employees perform the work). The current Western Australian threshold is $850,000 per year at which point a tax rate of 5.5% applies. Other states’ thresholds can be lower; for example South Australia’s threshold is $600,000 annually, so it is important to be aware of the different state and territories’ thresholds each year.

Payroll tax is self-assessed which means employers have the responsibility of assessing if they are liable to pay the tax. Employers should check with the revenue office in the state or territory they employ from and assess the threshold that applies. If you are over the threshold you will need to register for payroll tax in the state or territory and lodge a payroll tax return. Payroll tax is generally lodged and paid monthly and then reconciled and adjusted annually based on the full years wages.

Even though it is a self-assessed tax, the state and territory revenue departments conduct regular audits to assess if the correct payroll tax has been paid. They also receive information from other sources which can prompt them to audit a taxpayer such as a large salary and wages or contractors amount reported in an employer’s tax return.

Pro tip:

Most types of wages payments are assessable as taxable wages but look out for exemptions for workers compensation receipts, disability wages, certain apprentices and trainees and parental leave.

For more information visit www.payrolltax.gov.au or call us on 93355211 for assistance with any payroll tax queries.

Related blogs:

What is single touch payroll?
Do I need to pay super for contractors?
Making sense of superstream for employers

 

Author: Allan Edmunds
Email: allan@faj.com.au

If you are an employee, salary sacrificing to super is an attractive option to boost your super balance, as well as getting a tax saving. Though did you know that if you salary sacrifice to super, you could be missing out on part of your super guarantee?

The super guarantee is a compulsory system of superannuation that employers pay on behalf of their qualifying employees. Employers are obligated to contribute 9.5% of their employee’s salary or wage into super. As well receiving the super guarantee, some employees choose to make super contributions through a salary sacrifice agreement. However, an issue that some employees face is that their employers do not pay the super guarantee on their entire salary – they only pay the super guarantee on their reduced salary (their salary less the salary-sacrificed amount). This is where some employees miss out on part of their super guarantee.

Luckily, there is another option for employees. As of 1 July 2017, employees are able claim a deduction for personal super contributions they make to their superfund. If employees choose to do this rather than salary sacrifice, they will still reduce their taxable income, but they also will receive the super guarantee on their total salary (which may not be the case if you salary sacrifice to super).

It is important to note that your employer may not be obligated to pay the super guarantee on your entire salary if it does not state that they must do so in your salary sacrifice agreement. If you want to know whether you are receiving the super guarantee on your entire salary, check with your employer or your payroll department.

Pro Tip:
Be careful of how much you contribute to super – the contributions that you claim as a deduction will count towards your concessional contributions cap, and so does the 9.5% super guarantee. If your combined super contributions exceed the $25,000 cap, you will be liable to pay extra tax.

Author: Tessa Jachmann
Email: tessa@faj.com.au

If you have ever invested in the stock market, it is likely you have come across franking credits. Whether it be an amount on a dividend statement you notice doesn’t hit your bank account, or a refundable tax offset you see on your tax return. What does it actually mean and how does it affect you?

Why does the dividend imputation system exist?
A dividend imputation system is where some or all of the tax liability for a company is transferred to its shareholders in the form of a franking credit. The franking credit accompanies a dividend, which represents earnings by the company. The purpose of franking credits is to stop company profits from being taxed twice, so that whoever eventually receives the profits will be taxed at their own marginal tax rate.

How does it work?
Most companies pay tax on their profits at 30%. The company can choose to either reinvest their after tax profits back into the business or to pay some or all of these profits out to its shareholders as a dividend. The shareholder will initially receive the after tax amount (maximum of 70%), as 30% would have being paid by the company as tax. For the shareholder, the tax treatment is that the dividend is grossed up (imputed back to 100%) and then included as in the shareholder’s tax return and treated as ordinary income. The shareholder is assessed at their marginal tax rate and receives a credit for the franking credit. So if the shareholder’s marginal tax rate is less than 30% the shareholder is better off (from a tax perspective).

Why did I not get my franking credits refunded?
If you are in a higher tax bracket than the company, you will have to pay the additional tax on the dividend that the company hasn’t paid. For example, if you receive a dividend fully franked at 30% (that is the company has paid 30% tax on the earnings already), and you are a higher income earner in perhaps the 45% tax bracket, you will have to pay an extra 15% tax on the dividend.

Why do some dividends not have a franking credit?
If you receive an unfranked dividend, this means the company has not paid tax on the money you are receiving. You are more likely to receive an unfranked dividend when you invest in companies that do not necessarily pay much tax, as they have more deductions available to them. Companies can only distribute franked dividends if they have paid enough tax previously. There is also the possibility of receiving a partially franked dividend, which occurs when the company hasn’t paid enough tax to be able to pay a fully franked dividend.

I don’t need to lodge a tax return, am I entitled to a refund for franking credits?
If you are wanting to do this yourself, the easiest way is to go through your myGov account online. Alternatively, you can obtain an “Application for refund of franking credits for individuals” through the ATO website, before lodging this either by phone or post to the ATO. There is also an automated refund process that is being piloted by the ATO where a selection of taxpayers who applied for a refund in the previous year will be automatically issued a refund based on information reported to the ATO and the relevant share registries.

 

Author: Jake Solomon
Email: jake@faj.com.au

Bank feeds are automatically created lists of the transactions (spent and received) in your bank account which are electronically ‘fed’ through a third party provider to your accounting software. Bank feeds have been around for a while as part of desktop accounting software and have been integrated into online accounting software only in the past couple of years.

The great thing about bank feeds is that they heavily reduce the amount of data entry for business owners or their bookkeepers. The method of collecting these feeds differ between software providers and banks.

How does it work?
Bank feeds work by linking the data in your business’s bank, credit card and PayPal accounts to your accounting software.

Once the transaction has arrived in your software it needs to be coded to a general ledger account. This is where the magic begins – once a transaction has been coded the first time the software uses rules and artificial intelligence to learn how to automatically code future transactions. You can further assist by setting up  rules within your accounting software to auto-match all transactions and in this way minimize data entry.

For example, once you have allocated an account and tax code to a bank charge transaction all future bank charges with the same description will automatically be coded the same way. Of course if necessary the auto coding can be overridden.

Bank fed lines can also automatically match to any sales invoice or purchase invoice created in the software. If multiple invoices are paid at one time then matching to outstanding invoices can be completed with ease from the bank reconciliation screen.

The setup.
Generally setup requires signed bank forms which can be downloaded from within the accounting software. Sometimes direct links through online banking can be activated on the spot depending on the bank and type of account. This involves either:

• Accessing the bank account through online banking and activating to link with the accounting software selected (e.g. Xero, MYOB or Quickbooks) and the bank account created in the software

Or

• Accessing and printing bank forms from your accounting software, filling out the bank form information and getting the relevant people to sign forms (i.e. the signatories of the bank account). Then submit the forms to the relevant accounting software used. (Submission is usually via email to the accounting software provider)

Why are Bank Feeds So Important?
A large part of SME bookkeeping is coding bank statements into revenue and expense categories so a business can track its sales and costs. A user can set up rules to automatically match transactions from certain suppliers (e.g. a credit card transaction from an airline would be categorised as Travel). This coding occurs from within the bank reconciliation screen which is more efficient than older methods, and cuts out hours of manual data entry required to reconcile accounts.

Online accounting software collects bank feeds in two ways.

1. The Direct Feed
Larger software companies pay the biggest banks to receive bank feeds for shared customers’ accounts. The bank’s IT department prepares its systems to export a daily feed of transactions from its banking system to the software company’s databases that run the online accounting program (eg. Xero, MYOB).

Direct feeds are commonly used for everyday business and personal bank accounts, some loan accounts but not term deposits. It does depend on the banks setup of the banking accounts whether they can be fed or not.

2. The Indirect Feed
An online accounting program can also use a data aggregation service which collects bank feeds from thousands of banks.

The data aggregator used by most software companies is a US headquartered company called Yodlee. Yodlee sidesteps the cost of paying for fees by copying the list of transactions on the screen of users’ online banking portals.

Yodlee cleans up the list, removes duplicates and sends it to the user’s online accounting software as a bank feed.

This process is called “screen scraping” and initially created some controversy for two reasons.

1. The technology is not perfect and the occasional transaction is duplicated or omitted. Online accounting programs that use Yodlee recommend checking reconciled accounts against the balances in your online banking portal.
2. Yodlee is most commonly used for credit card feeds, although recently the ANZ Business One credit card has commenced feeding through using the direct method feed.

Pro Tips:

• Credit cards can be particularly helpful when using bank feeds as they contain more descriptive information than regular bank transactions. This description improves the effectiveness of rules and artificial intelligence.
• Contact FAJ Bookkeeping if you’d like advice or assistance with integrating your bank feeds into your accounting software.

Author: Jasmina Nesic
Email: jasmina@faj.com.au