Removal of 5% HELP discount

Removal of 5% HELP discount: from 1 January 2017, the Australian Government will remove the voluntary HELP (previously known as HECS) repayment bonus.

What are the current arrangements?

You can currently make voluntary repayments to the ATO at anytime and for any amount. Voluntary repayments are in addition to the compulsory repayments made through your tax return. Currently and up until the 31st of December if you make a voluntary repayment of $500 or more, you will receive a bonus of 5%. This means your account will be credited with an additional 5 % of the value of your payment. Please note the bonus is 5 % of your payment amount, not 5 % of your outstanding debt.

Ensuring you get the bonus before it disappears:

If you’re intending to make a voluntary repayment, you will need your payment reference number (PRN). This can be found on your account information statements, through your myGov account or by calling the ATO on 13 28 61.

Note: The ATO will be closed from midday 23rd December 2016 until 3rd January. ATO online services will also be unavailable during this time.

What does this mean for you?

  • If you need to confirm your PRN, you must do so before the ATO shutdown; and
  • Ensure your payment is received by the ATO before the 31st of December 2016 to receive the bonus.

Pro tip

Check when your Financial Institution’s processing deadlines are and make sure that payment is received by the ATO by the 31st December to ensure that you get the 5 % bonus.

Author: Nick Vincent
Email: nick@faj.com.au

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$20k small business write off concessions

On the 2015 budget night it was announced that small business entities would be able to claim an immediate deduction for individual assets costing less than $20,000. What exactly does the $20k small business write off mean to you?

Prior to May 15 small business entities (SBE’s) making use of the simplified depreciation rules were able to claim an immediate write off for assets costing $1,000 or less. Assets costing more than $1,000 were added to a general small business pool where they were depreciated at a rate of 15% in the year of acquisition and then at 30% in each subsequent year.

Under the new rules that threshold has increased to $20,000 meaning any assets purchased on or after 12 May 2015 7:30pm AEST will be eligible for an immediate write off as long as they individually cost less than $20,000. For businesses registered for GST, the asset value is the GST exclusive cost. For businesses not registered for GST the asset value is the GST inclusive cost. The increased threshold will only apply until 30 June 2017.

The $20k small business write off also applies to an existing general small business pool. If the closing balance of that pool falls below $20k or less the pool balance must be written off.

Assets excluded from the write off:
• Horticultural plants – subject to their own ‘uniform capital allowance’ rules (UCA);
• Capital works – subject to their own ‘capital works’ depreciation rules;
• Assets allocated to a low-value pool or software development pool – subject to the deduction rates applicable under those rules;
• Primary production assets for which the entity has chosen to use the normal depreciation rules rather than the simplified depreciation rules; and
• Assets leased out to another party on a depreciating asset lease.

You can only claim a write off for a newly purchased motor vehicle if you’re using the logbook method or 1/3 of cost method. Under the log book method your deduction is limited to the extent of your logbook percentage.

The write off is limited to the extent that the asset is used for business, so be sure to factor in the private use component when considering how much of a deduction you will be entitled to claim. Also be mindful that if an asset costing more than $20k has a business use of under $20k (i.e. $30k car with a 50% business use) you will not be able to claim an immediate write off.

Unlike in the past businesses that have opted out of the simplified depreciation rules will not be subjected to the ‘lock-out’ rule. SBE’s that have opted out can now opt back and take advantage of the increased threshold.

Pro Tips

  • Be sure to check the dates you purchased your assets and make sure you’re considering how GST impacts the value of your asset.
  • Remember that you can opt back in to the simplified depreciation rules and take advantage of the increased threshold.
  • Be mindful of private use apportionments when considering how much of a write off you’ll be entitled to claim
  • Second hand assets are also eligible for the write offs
  • The write off is a choice. There may be circumstances (e.g. low income years) where it will not be beneficial to claim the immediate write off.

Author: Heather Cox
Email: heather@faj.com.au

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Why have my quarterly PAYG instalments increased?

Have you been paying quarterly PAYG instalments to the ATO for a while and suddenly get a notification that the amount has changed? Its a common question we hear – why have my quarterly PAYG instalments increased?

Firstly, make sure you’re reading the right document. When you have a change of circumstances (like lodging a tax return), the ATO recalculates your quarterly instalment and sends you a notice to inform you. The amount showing here is your annual liability which is an information notice, not a payment notice. You’ll get your payment notices separately on a quarterly basis.

Make sure you are looking at your quarterly payment notice (they are a pinky colour). If your instalments have increased substantially from the previous year, it will generally be as a result of a spike in income from one tax return to the next.

This happens because your instalments are calculated based on the previous tax return that the ATO has a record of. The minute you lodge a new tax return, with increased earnings (especially from an untaxed source like interest or business earnings), the ATO will increase your instalments to compensate for the increase when the next return gets lodged. This increase could happen during any of the four quarters of the year, depending on the timing of other events.

Pro tip
The timing of lodging your tax return can impact substantially on the calculation of your next PAYG quarterly instalment. Talk to your tax professional to understand this before making a decision on when to lodge.

Author: Nick Vincent
Email: nick@faj.com.au

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Less known rental deductions

Please note that there have been amendments to law since this blog was posted, please refer to our blog Changes to Rental Property Deductions posted 29/11/17 for more information.

There are many common deductions that property owners are aware of, but here are a few of the less known rental deductions.

Special body corporate levies & contributions to strata sinking fund
Strata bodies sometimes charge additional amounts on top of the standard fees in order to pay for certain common area expenditure. These may be deductible, depending on the purpose of the levies.

Lenders mortgage insurance
Mortgage insurance is often required by banks where an investor has low equity in a property. The cost of the insurance is deductible over five years.

Package fees on borrowings
Lenders will often slug you with annual bank charges that are deductible in addition to the interest you are also paying.

Travel & airfares
Travel (especially airfares) comes under close attention by the Australian Taxation Office, but is a valid claim if the trip has the sole purpose of inspecting or repairing a property. If the travel also has a purpose outside of visiting the rental, you should keep a diary of events, and apportion some of the costs.

Phone cost and internet usage
A portion of your phone & internet may be deductible if you find yourself using both services in order to manage and maintain the property.

Prepaid interest
Lender’s allow you to prepay interest on your loan. This can be an effective tool in reducing tax in high income years. Note that the most you can deduct is up to 12 months of prepaid interest.

Depreciation & capital works 
Sole owners of property can claim capital expenditure items (new assets like fridges & dishwashers) outright if they cost less than $300. Where property is jointly owned, this doubles to $600 per item. If the property is relatively new, has some sizable renovations or is filled with furniture and appliances you paid for yourself it might be advantageous to have a professional depreciation report prepared.

Pro tip:
Many small business owners would be aware that they can claim assets costing up to $20,000 outright in the year that they purchase them. But many wouldn’t know that this deduction extends to assets they purchase for work related purposes or investment assets. So if you are a small business owner who also has a rental property, you may be entitled to these generous tax concessions for assets you acquire for your property.

Author: Nick Vincent
Email: nick@faj.com.au

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Capital Gains Tax and Building a House

There are a few tricks when it comes to capital gains tax and building a house on vacant land.

The vacant land can be treated as a main residence (therefore exempt from CGT) prior to the time you build, subject to a few conditions;

1) Within 4 years you construct your home
2) You move in as soon as practically possible
3) You live in the property for at least 3 months
4) Land is less than 2 hectares (20,000 square meters, 4.942 Acres)

The usual other rules apply such as not having more than one main residence at a time.

How do you make this election?
You don’t. When you ultimately sell your home you decide on how to treat the capital gain calculation. This means you will have the benefit of hindsight.

Pro Tip – Caution
Moving in as soon as possible is important. If you are overseas at the time the house is finished the ATO have deemed that not to be considered as soon as practically possible. The ATO will often consider ‘practical completion’ by a builder to be indicative of the time you can move in.

Author: Heather Cox
Email: heather@faj.com.au

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New audit rules for Clubs and Associations

From 1 July 2016, new audit rules for clubs and associations in WA will come into effect.

Are you ready? Do you need help understanding the rules?

Smaller incorporated associations – that is, clubs and associations with less than $250,000 revenue per annum – will have no requirement to undertake a review or audit of their financials (unless members vote otherwise).

Clubs and associations with a turnover between $250k to $1m will need their financials either reviewed or audited by a member of CPA Australia (CPA) or Chartered Accountants Australia and New Zealand (CA).

Clubs and associations with a turnover of $1m or more cannot select a review and must have an audit, and this audit must be performed by either a CA or CPA that holds a Public Practice Certificate, or a Registered Company Auditor.

It may seem like additional time, effort and expense to have an annual audit, but there are a number of reasons and benefits for having an audit conducted –

  • an audit of the financial records of the association ensures greater accountability to the members
  • the audit gives assurance that all funds received by the organisation have been correctly collected, documented and banked. It shows that all monies spent by the organisation were for the purpose of the association, approved by the management committee, and documented. Apart from anything else, this helps to protect management committee members against unfounded allegations of misconduct;
  • the audit provides an account of the assets of the association and verifies that records and registers are properly maintained;
  • the audit functions as a check and balance. It requires that the financial statements of the association be kept to a standard in order for the audit to occur and will indicate areas that may require improvement.

The FAJ Auditing team can complete your club’s audit quickly, professionally and at competitive cost.

Pro Tip

For additional information contact me directly via the email below. You can also refer to the following link that contains Questions and Answers in relation to the New Association Law – https://www.commerce.wa.gov.au/publications/new-association-law-questions-and-answers

Author: Daniel Papaphotis
Email: Daniel@faj.com.au

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Corporate or natural SMSF trustee?

Every Self Managed Super Fund (SMSF) must have a trustee (or trustees), but you need to make a choice as to whether to have a corporate or natural SMSF trustee.

One option is to have individual or “natural” trustees (i.e. the members). This comes with cheaper initial setup costs and marginally cheaper annual filing fees.

The second option is to appoint a corporate trustee (a company). Conversely this comes with a higher setup cost and marginally higher annual filing fees.

However there are some other key advantages with having a company as the trustee that far outweighs the additional costs. These include:

  • Ease of adding or reducing members. With a corporate trustee this is as simple as completing a member form and lodging a form with ASIC. With individual trustees, you will need to change the title of every asset (every shareholding, property, bank account etc.) and failure to do so can result in penalties.
  • Single members funds. Single member funds can have a corporate trustee with only one director, but a fund with individual trustees must have 2 trustees, even if there is only one member.
  • Separation of assets. SMSF law demands that the assets of a super fund are clearly kept separate from the assets of members. This is easy to do when the assets of the fund are in the name of a trustee company. However with natural trustees this is far more difficult, and means you must show the name of the super fund on titles as well as the name of the individual trustees. Currently land titles in WA do not allow this to happen, so further costly legal documentation may be required to satisfy the rules.
  • Reduced penalties. After recent changes penalties for non compliance have increased substantially. For example, a breach of the separation of assets rules (see above) for a fund with a corporate trustee will result in a total penalty of up to $1,800 per breach. Comparatively, individual trustees would receive a penalty of $1,800 per trustee (and note that the individual trustees must pay this personally, not from the assets of the fund). Penalties for other breaches (like lending to members) can be as high as $10,800 – so for a fund with 4 natural trustees, that’s $43,200 between them.
  • Succession. Funds with companies as the trustee can easily continue after the death of the members, whereas it’s more difficult and costly to keep funds with individual trustees continuing after death.

Pro tips

Having a company act solely as trustee for your super fund (i.e. not acting as trustee for any other trusts or businesses) reduces the current annual ASIC filing fee from $246 to $46.

It may be tempting to save initial costs by using an individual trustee, but our experience says it is far better to have a corporate trustee right from the start. Changing at a later date is possible, but comes with a cost and a frustrating administrative experience.

Author: Natasha Piccoli
Email: Natasha@faj.com.au

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Wine tasting – can it be tax deductible?

Generally the Australian Taxation Office considers the purchase of wine for tasting purposes to be a private expense and therefore non deductible.

For expenses to be considered deductible they need to follow two general rules:

• Firstly, was this expense incurred in gaining or producing assessable income? Or
• Was this outgoing relevant to the gaining of assessable income?

If the answer is no, then your expense is likely to be considered as private and therefore non deductible.

The courts have considered this in various cases over the years. In one case a food and beverage analyst, who’s main role was compiling new wine lists for restaurants was denied a deduction for several mixed cases of wine purchased for wine tasting at home. The taxpayers employer did not require them to incur the expenditure (although they did help to arrange a discount price). The taxpayer consumed a quarter of the bottle for tasting and the remainder for private use. The court determined even though the tasting may help the taxpayer perform their duties, the expenditure was not necessarily incurred in order to earn their income, and did not have a sufficient connection to earning that income.

Where a business (e.g. a licenced restaurant) owner incurs expenses for wine tasting, it is more likely to have a connection to business income and be deductible, especially where the wine is tasted at the business premises, whether by the business owner or their staff.

Author: Georgia Burgess
Email: Georgia@faj.com.au

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New tax rules for property sales above $2m from 1 July 2016

Edit – these rules have changed from 1 July 2017 and now apply to property valued at $750,000 or more, and the withholding rate is 12.5%.

The ATO has introduced a new rule for Australian residents buying or selling property valued at $2 million or more.

So how does this work?

The ATO wants any Australian Resident who purchases Australian property to withhold 10% of the purchase price and remit this to the ATO.

The exception to this is if the seller provides the purchaser with a “clearance certificate” on or before the day of settlement.
The clearance certificate is designed to provide the ATO with the information to determine the seller’s tax residency status and whether or not the 10% withholding tax should apply.

How do you obtain a clearance certificate?

A PDF version of the form is available through the ATO website and once completed, the original should be faxed or posted to the ATO and a copy retained. Clearance certificates are valid for 12 months from the date of issue.

How will the credit for the withholding tax be claimed?

Assuming the purchaser pays the amount to the ATO, the ATO will notify the seller that the payment has been received. If the seller provides their TFN to the purchaser then the ATO can easily match the payments when the purchaser lodges the “purchaser payment notification”. The purchaser payment notification is the form the purchaser lodges with the ATO along with the 10% withholding tax.

In Summary.

  • Sellers and purchasers of Australian property or other CGT asset on or after the 1st July 2016 will have to comply with these new rules.
  • Whether or not an amount needs to be withheld and the entire process that follows will depend entirely on the tax residency of the seller.
  • The 10% withholding amount is calculated based on the market value of the property.
  • Ignorance of the rules doesn’t appear to be an excuse and if a purchaser fails to remit to the ATO the amount they should have withheld, the ATO will apply a penalty equal to that amount. (also subject to interest)
  • If the purchaser doesn’t remit the amount withheld to the ATO then the seller will not be entitled to a credit when they submit their tax return.
    The ATO would then pursue the seller for any amount not remitted to the ATO by the due date

Further information can be sought from the ATO directly, real estate agents, conveyances’ or legal practitioners.

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

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Personal Property Securities Act (PPSA) – friend or foe (part 2)?

My accountant set up a separate company to own equipment, so I am safe…aren’t I?
If your equipment is not registered under the Personal Property Securities Act (PPSA )it is not safe. If you operate a trading business using equipment owned by another related entity under a hire or lease arrangement you are still at risk of these assets forming part of the pool of assets to be liquidated. If the insolvent trading business is in possession of the related entities equipment, its administrators will treat the equipment as ‘fair game’ and it will be sold off to pay the trading businesses creditors.

In house asset holding entity arrangements do not attract different rules or special treatment. The asset holding company needs to record its interest in the equipment on the PPS Register. If the trading entity on-hires the equipment, the trading company also needs to register its interest in the equipment.

I have correctly registered my equipment and goods. My client becomes insolvent. What happens next?
The appointed Insolvency Practitioner will perform a search of the PPS Register and will identify your registration of your interest in your property. If your registration is correct the Insolvency Practitioner will contact you to ascertain the interest you have in the property you’re claiming.

You will need to produce a written agreement between you and the insolvent customer (hire or sale agreement, terms of trade etc). You will also have to identify your equipment/goods and be able to match them to unpaid invoices or other agreements.

If all is in order the Insolvency Practitioner will return the hire equipment to you.

The recovery process for suppliers retaining title to the goods they’ve sold may be more complicated. Such suppliers have a secured interest in:
• any goods still on hand;
• any work in progress where the supplied goods have been attached to, comingled or manufactured with other goods;
• any debts due to the insolvent customer from the sale of the suppliers goods.

For example, First Steel supplies $75,000 of steel to a fabricator. On the fabricators collapse First Steel is:
• Now a secured creditor over the $10,000 steel stocks still on hand;
• Now a secured creditor over the fabricated work in progress of $15,000.
• Now a secured creditor over the fabricators outstanding debtors where First Steel’s steel was used.

How much does it cost to register and how do I register?
Most suppliers can obtain 7 years protection for $6.80 per customer (less than $1/year). One registration is enough to cover all future supplies, so it couldn’t be simpler. You prepare the registrations on line. First you need to create an account and then register assets/customers on line.

A word of warning: the PPSA is not a DIY project. Many businesses doing it themselves may be doing it incorrectly.

For more complex registrations you may need to use a consultant. We recommend EDX (WA) Pty Ltd who are experts in the personal property securities area. Contact simon.read@edxppsr.com.au

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

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