Do I need to register for GST?

If you are carrying on an enterprise and your turnover for the next 12 months is likely to be more than $75,000 you will be required to register for GST.

If you are under that threshold you can choose to be registered for GST, unless you’re a Taxi or Uber driver in which case you must register for GST, regardless of turnover.

How do I register?
Registering is easy – you can do this online, phoning the ATO on 13 28 66 or alternatively contact your accountant.

If you’re new to business then you can do your GST registration at the same time you apply for your Australian Business Number (ABN).

Once you’ve registered, you must include GST in your sales price (unless you’re providing exempt services such as medical or education).

How do I know how much GST to put aside?
If most of your sales and purchases are subject to GST, then you should put aside an estimated amount based on one-eleventh of your sales less one-eleventh of your purchases.

When do I need to pay the GST?
You report and pay GST amounts to the ATO, and claim GST credits, by lodging a business activity statement (BAS) or an annual GST return. This can be done online or manually.

The ATO will issue your business activity statement about two weeks before the end of your reporting period, which for GST is usually every three months. The date for lodging and paying is shown on your activity statement.

Record Keeping
Ultimately you need a system that is going to track the GST you have received and paid. This could be a simple excel worksheet, manual cashbook or more advanced accounting system such as MYOB or Xero. Your accountant can help you decide which system would best suit your business.

Pro Tips
If you run a small business that deals primarily with home users then it’s usually preferable not to register for GST (if you’re turnover is under the thresholds). This means that your total cost to the end consumer may be less than someone that is registered for GST, and this gives you a competitive advantage.

If you run a small business you can opt to account for GST on a cash basis. The advantage of cash accounting is that it’s easier to manage your cash flow as the money flowing through your business is better aligned with your business activity statement liabilities.

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

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Making sense of SuperStream for Employers

SuperStream is the way businesses must pay employee superannuation contributions to super funds. SuperStream transmits money and information electronically across the super system – employers, super funds, service providers and the Australian Taxation Office (ATO).

Advantages include:
• Employers are able to make all their super contributions in a single transaction, even if the payments are going to multiple super funds
• Super contributions and rollovers are processed faster, more efficiently and with fewer errors
• People are more reliably linked to their super, reducing lost accounts and unclaimed monies

Some online accounting software packages include SuperStream for employers – for example MYOB and Xero. If you have this type of accounting software, you can contact the software provider and arrange registration for SuperStream. Transfer of payments and the associated information will then be completed via your online accounting software.

If you do not have online accounting software then you are required to register with the government superannuation clearing house. Once set-up you will be able to lodge your super returns with the ATO and payments with the clearing house. The clearing house will then complete the required payment and information transfer to the appropriate super funds for your employees.

The ATO Small Business Superannuation Clearing House is free for small businesses with 19 or fewer employees, or a turnover of less than $2 million a year.

The employee information required for setting-up SuperStream includes the employee’s tax file number (TFN), their fund’s ABN and their fund’s electronic details. The electronic information required for employees with industry or retail superannuation funds is the fund’s unique superannuation identifier (USI). If your employee has a self-managed superannuation fund (SMSF) then they will need to provide you with their fund’s ESA (electronic service address).

Author: Brigette Liddelow
Email: brigette@faj.com.au

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What is Division 7A?

As a business owner you may have heard your accountant talking about Division 7A and wondered what all the fuss it about.

If you are operating your business through a company, you might expect that your hard earned efforts to be profitable would mean that the money is yours to access, right? This is somewhat true. The problem is that a company is a separate legal entity. As the owner of that company you have the ability to access the profits but only through the correct mechanism – i.e. by payment of dividends to shareholders or payment of wages to directors.

A common trap for company owners is to think that they can withdraw money from their company bank account ad-hoc for private use and not pay the money back. This is perfectly acceptable for sole traders or partnerships, but not for companies.

The Australian Taxation Office (ATO) has enforced Division 7A to prevent shareholders from doing exactly this. Why would this matter to the ATO? Because if shareholders are taking money from companies without declaring it in their own tax returns (as you would with dividends and wages), the shareholder is essentially receiving a tax-free distribution. This is different to a sole trader or partnership where the owner is paying personal tax on all the profits anyway, whether he or she draws those profits or not.

Should you withdraw money from your company for personal use and do not pay the full amount back by the lodgement date of that year’s tax return, you will trigger Division 7A. If this occurs, and no action is taken then any payments made from the company to shareholders will need to be declared as unfranked dividend to the shareholders (an outcome which ought to be avoided).

One option to avoid an unfranked dividend being declared is to enter into a complying Division 7A loan agreement between yourself and your company. This allows the money withdrawn to be treated as a loan for which you must pay future minimum repayments and interest. This is often a better outcome, especially when cash flow is an issue and you can’t immediately pay the money back.

Pro Tips
• Always be mindful when taking money from a private company if it cannot be paid back before tax return lodgement date
• Make sure your Division 7A loan agreement complies with all the requirements of the law for it to be valid
• Speak to your accountant about ways repayments can be made if a Division 7A loan agreement has been entered into

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

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Subdividing your main residence and selling the subdivided block – what costs can you claim?

If you are considering subdividing your main residence and selling the new block, the profit on the sale of the subdivided block is subject to capital gains tax. In order to calculate the capital gain made on the sale of property, you will need to know the sale price and the cost base. There are several expenses that you can add to the cost base of your newly created property which will decrease the profit you make on the sale of the land, and therefore the capital gains tax you pay.

Expenses that you can add to the cost base of the new block are as follows:

– A portion of the original property cost
– Subdivision costs
– Construction costs (if you build on the new block)
– Council rates
– Water expenses
– Electricity expenses
– Interest on the property loan
– Repairs and maintenance
– Insurance expense

The above expenses are generally apportioned on a reasonable basis between the original dwelling and the new block, except for payments that are solely attributable to new property (for example, construction costs if you build a house on the new block).

It is essential that you have all the information necessary to calculate the correct cost base amount in order to avoid a larger capital gains tax bill.

Pro tip:

Although subdivision costs are generally apportioned across the two properties, the costs of connecting electricity and water to the new block can be solely attributed to this block.

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

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Four year construction rule when you subdivide your home and move into the subdivided lot

As mentioned in our previous blog (Four year construction rule when you buy vacant land or renovate), the main resident exemption is the concept whereby your home (otherwise known as your main residence) is exempt from capital gains tax (CGT). Under the four year construction rule, you can choose to treat your new house as if it were your main residence for up to four years before it actually becomes your main residence.

This concession is also available if you decide to subdivide your existing home and move into the newly constructed house on the subdivided block. The effect of applying the four year construction rule in this circumstance is slightly different to when you purchase a new property as per the previous blog.

If you subdivide your home and construction of the new house takes less than four years, the main residence exemption will apply to the new house for the four years prior to moving in, including part of the time before the land had been subdivided. So say you purchase your original house in January 2008 and subdivide you family home in May 2011. Construction is completed in October 2013 and you move in straight away. Using the four year construction rule, you are able to claim the main residence exemption for the four years immediately before you move in to the subdivided lot, which is October 2009 (so before you subdivided).

Similarly to the previous blog, if construction of your new house on the subdivided lot takes more than four years from the time subdivided to the time you move in, then the exemption is limited to the four years immediately before the property becomes your main residence.

Pro tips:

  • Remember, you can only treat one property as your main residence at any time. This means if you choose to apply the four year construction rule to the new residence on your subdivided lot, your original property would be liable to CGT.
  • If you elect to use the four year construction rule, you must move into your new home as soon as practicable after it is completed and you must live in it for at least three months to be able to use this concession.

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

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Four year construction rule when you buy vacant land or renovate

Generally, if a house is classified as your main residence (meaning it is your home), then it is exempt from capital gains tax (CGT). This concept is referred to as the main residence exemption.

If you buy a vacant lot that you plan to build your new house on, or if you buy an existing home that you are renovating before you move in, then you are able to claim the main residence exemption from the date that you move in to your new house.

However under the four year construction rule, you can choose to treat your new house as if it were your main residence for up to four years before it actually becomes your main residence. This allows you to apply the main residence exemption for a period of up to four years immediately before the date you move in to that house, during which time your new house is either being constructed, repaired, or renovated.

The effect of this concession depends on your circumstances. If construction or renovations take less than four years from the time you purchased your new property, then the main residence exemption will apply for the entire ownership period. An example of this is if you purchased your new property in May 2011 and completed renovations/construction by October 2013 and move in straight away. In this circumstance, you can claim the main residence exemption for the entire time as the time between purchasing your property & moving into it is less than 4 years.

If renovations or construction take more than four years from the time you purchased or subdivided to the time you move in, then the exemption is limited to the 4 years immediately before the property becomes your main residence. So working on the above example, say you purchase the new property in May 2011 but renovations or construction aren’t completed until October 2016 – in this case, the main residence exemption can be applied from October 2012. This means you may be liable to pay capital gains tax for the period from May 2011 to October 2012.

However, it is important to note that you can only elect to use the four year construction rule if the following conditions are met:
• The new home becomes your main residence as soon as practicable after it is completed
• The new home continues to be your main residence for at least three months.

Pro Tip:

  • No other dwelling can be treated as your main residence (i.e. exemp from CGT) during the construction period, however there is a rule for changing main residences where you may be able to treat both homes as your main residence for a six month period.

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

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Private Health Insurance – The carrot and the stick

The government wants the majority of taxpayers to have private health insurance to reduce the costs for the Medicare system.

The government aims to attract people towards holding private health insurance by giving a rebate for premiums paid by people below a certain income threshold and penalising you if your income is above a certain threshold and you don’t have health insurance.

This link outlines the thresholds and rates for the implications of either having private health insurance and receiving the rebate or not having private health insurance and paying the Medicare levy surcharge.

The amount of rebate you receive or penalty you pay depends on how much taxable income you or a combination of you and your spouse make for the year.

Pro Tip:
Purchasing private health insurance is a personal preference. However, if your income is above $140,000 for singles or $280,000 for couples then the surcharge is $2,100 or $4,200 respectively. It is likely that you could get some form of health insurance for less than this. The private health insurance needs to meet certain criteria to qualify, so make sure you specify with your health fund that the policy qualifies you for the rebate or for the avoidance of the surcharge.

Note:
Lifetime Health Cover (LHC): is designed to encourage people to purchase and maintain private hospital cover earlier in life. The amount of a person’s LHC is determined by the number of years they are over 30 years old at the time they take out hospital cover. Each year will attract a 2% hospital cover premium. The maximum LHC loading applied is 70%.

Author: Rhys Frewin
Email: rhys@faj.com.au

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Is the cost of your new website deductible?

The cost of developing a new website for your business is not usually tax deductible in full. The costs can be depreciated which generally means you receive the benefit of a tax deduction over a few years, although there are some concessions for small business owners.

If you are a small business (you have a turnover of under ten million dollars) you may choose the simplified depreciation rules.
These rules allow you to immediately write of the website development costs incurred during the year, provided the total development costs for the website are less than $20,000 and the website is completed by 30 June 2018.

If your total costs are above $20,000 and you are a small business you may allocate the cost to the small business pool. The small business pool allows you claim the following:
• A 15% deduction for the first year
• A 30% deduction each year after the first year

For larger businesses to whom the simplified deprecation rules do not apply, the cost of the website can be depreciated over 5 years – i.e. 20% per year. For example:

Website development costs of $100,000 are incurred in March 2017 by a large business. The business can claim $20,000 in 2016/2017 and $20,000 in each year after up until 2020/21.

For ongoing expenses such as domain name registration fees, hosting fees, maintenance and minor enhancements you are able to claim a full deduction for these when incurred.

Pro tip:
Small businesses wanting to take advantage of the $20,000 immediate write off must have their websites completed and ready for use by 30 June 2018. After this date the immediate write threshold will reduce to $1,000.

Author: Lachlan Hunn
Email: Lachlan@faj.com.au

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Making a family trust election

Many trusts have the words “family trust” in the title but just because a trust is called the Smith Family Trust doesn’t mean it meets the ATO definition of a family trust. To be considered a family trust you must specifically make a family trust election on your trust income tax return.

There can be numerous benefits to making the family trust election, some of these are:
– More relaxed tests for claiming tax losses
– More relaxed tests for injecting other income into a trust (to utilise tax losses)
– Ability to claim over $5,000 in franking credits

However as a consequence of making the family trust election you can then only distribute income within your family group. If your trust distributes income outside of your family group the distributions are taxed at the highest tax rate (currently 49%).

The family group revolves around a main person (nominated as the “test person”) which is chosen when you make the family trust election.

For more information on individuals that are part of the family group, click here.

Additional members of the family group can include:
• Estates of the individuals above
• Family Trusts with the same test person
• Companies or Unit Trusts 100% owned by the above
• Certain other entities (less common)

If you have losses in your trust or receive franked dividends of $11,667 or more for the year, you may need to consider whether a family trust election needs to be made.

Pro tip: Family trust elections can be back-dated to 1 July 2004 or later as long as distributions have not been made outside the family group during that time.

Author: Stacey Walker
Email: Stacey@faj.com.au

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When do I need to pay super for contractors?

It’s easy to assume that if you use contractors in your business that you don’t have to worry about paying super, but unfortunately this is not the case.

The Australian Taxation Office (ATO) looks more to whether the contract you employ them under is mostly related to labour. Where this is the case the ATO will consider the worker to be an employee, and you will need to pay super for contractors.

The ATO provides three different types of exertion that it considers labour:

1. Physical labour
2. Mental effort
3. Artistic effort

What happens if the contractor provides a mix of services?

Under the contract the ATO states that you only need to pay the super guarantee portion of the contract that is related to labour.

The ATO provides guidance on how to work the portion of the contract related to labour where it hasn’t been specifically mentioned. As per the ATO website:

“If the values of the various parts of the contract are not detailed in the contract, the ATO will accept their market values and will take the normal industry practices into consideration. If the labour component of a contract cannot be worked out you can use a reasonable market value of the labour component of the contact to represent the salary and wages of an employee”.

What do I need to do know?

First you need to determine whether or not this is applicable to you. The ATO provides a number of tools for business to use which clarify your position as provided below.

Employee/contractor decision tool
Superannuation guarantee (SG) eligibility decision tool
Superannuation Guarantee (SG) contributions calculator

What penalties can I incur?

If you don’t pay your eligible employees super, or pay it late you are liable for the super guarantee charge and will need to lodge additional forms with the ATO.

Save yourself some hassle and if unsure give us a call and we will guide you through.

Author: Adrian Wardlaw
Email: adrian@faj.com.au 

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