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!

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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 

 

It is an unfortunate part of life that at some point, someone close to you will pass away. It is therefore important to be aware of the tax consequences that come along with this. When an individual passes away, a legal personal representative (LPR) (AKA administrator or executor) will be appointed to manage the tax affairs of the deceased.

The LPR should notify the ATO of their appointment and of the death of the deceased, using the Notification of a Deceased Person form online. The LPR will be required to go to a post office to provide official documents for viewing, including the death certificate and either the letter of administration or evidence of probate. Probate is the process of proving and registering the last will of a deceased person, this will need to be done prior to managing their tax affairs. Once this has been done the LPR will have full authority to lodge any outstanding or future tax returns on behalf of the deceased.

The first step to finalising the tax obligations of the deceased is to ensure that all previous year’s tax returns have been lodged, and if returns were not necessary, then ‘Non-Lodgement Advice forms have been lodged.

Secondly, if in the year that the deceased passed away, they had any of the following, then a date of death tax return will be required:

• Tax withheld from income.
• Income above the tax-free threshold.
• Franking credits that they wish to claim.

A date of death tax return covers the period from the beginning of the financial year in which the deceased passed, being the 1^st of July, up until the date of death. The deceased’s marginal rate of tax will apply, including the entitlement to the tax-free threshold.

Finally, a trust tax return covers the period from the date of death up until the end of the financial year, being 30^th June. A trust tax return will be required if any of the following have occurred in the name of the deceased:

• Earns any amount of income above the tax-free threshold.
• Received dividends and wants to claim franking credits.
• Has carried on a business.

To lodge a trust tax return on behalf of the deceased, the LPR will be required to apply for a new TFN for the deceased estate.

A trust tax return will need to be lodged every year until the deceased estate is fully wound up and not earning any income. The tax rate that will apply will be the deceased’s marginal tax rate for the first three years, but if further returns are required beyond this, then higher, progressive tax rates will apply to encourage the LPR to make a genuine effort to wind up the deceased tax affairs.

Related blogs:

What happens if I die without a will?

Author: Molly Ingham
Email: molly@faj.com.au    

Trusts have been a recent target of the ATO after they released new guidelines on what’s known as Section 100A. The law is not new, but recent changes to the guidelines and the ATO’s application of the law are looming over accountants and their clients and may impact the way trusts distribute income moving forward.

The underlying objective of Section 100A is to deter scenarios where a trust allocates income to a beneficiary at a favourable tax rate but the funds associated with the income are enjoyed by some one else. 

The most common example of this is where the trustees of a trust allocate income to an adult child beneficiary (or even a niece, nephew, uncle or aunt), therefore  making them entitled to the income. However, instead of paying the income across to this beneficiary, the parents draw the money out of the trust and use it for personal purposes, and may have no intention of ever paying the debt to the beneficiary. This is the type of tax avoidance scenario the new guidelines are bringing into question.

If it is found a trust has not met the requirements of Section 100A, the trustee is taxed on the income at the top marginal tax rate (47%), instead of the beneficiaries’ marginal tax rates.

There’s many other scenarios that could trigger Section 100A in the new guidelines, which are unfortunately very grey in various areas, but in principal, if a trustee has a genuine intention to pay a trust entitlement to a beneficiary, the risk of Section 100A applying is much reduced.

As a first step we recommend that trustees keep evidence of how adult child beneficiaries might receive an economic benefit from their income entitlement from the trust. Did you pay for your child’s tax payments or help out with their first car or house deposit? Keep record of these payments (or even better, pay them from the trust) as they will help support your case if the distribution is questioned by the ATO.

Apart from evidencing expenditure and being clear on your intentions, there is no clear cut change to make moving forward as every trust scenario may be different to the next. Included in the guidelines are a number of scenarios which are considered lower to higher risk. When determining who the income of the trust should be allocated to, discuss with your accountant to see where you might fall in the risk categories and the expectations associated with allocating income to a beneficiary.

 

Other related blogs  

ATO guidance for distribution of professional firm profits
Why use a family trust?

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

In a recent announcement the Australian Taxation Office have energetically orated that they have “refreshed” the way that taxpayers claim deductions for costs incurred when working from home.

At times I refresh my glass of tepid wine with some cold stuff. I feel refreshed after a shower, and I occasionally freshen up the smelly bin cupboard with a spray of Glen 20. Full marks to the ATO marketing team for effort, but I’m not convinced that the term passes the smell test in this case.

Assistant Commissioner Tim Loh was on a high as he promoted the revitalised changes.

The new rules apply from 1 July 2022. Prior to that, you had a choice of three methods to claim work from home deductions such as electricity, depreciation, phone and internet.

• Shortcut method – which allowed 80c for every hour worked from home. This was a temporary COVID related measure that covered all running costs.
• Fixed-rate method – which allowed 52c for every hour worked for certain running costs, but phone, internet and stationery were claimed separately. Depreciation of home office furniture was included in the hourly rate, whereas depreciation of electronic gear wasn’t.
• Actual cost method – keeping records of all actual costs incurred.

For the 2022/23 tax year, employees and business owners working from home will have a choice of two methods only – a revised fixed rate of 67c per hour, or the actual cost method.

I’m all for minimalism and feel rejuvenated going from three methods to two. But that’s about where the simplicity ends.

The revised rate now covers electricity and gas, internet, phone costs, stationery and computer consumables. It does not include cleaning and depreciation of home office furniture or electronic equipment like laptops, printers, mobile phones and other devices.

To claim work from home expenses, taxpayers must have incurred the costs (and keep at least one receipt for each type), but don’t need to have a specific home office set aside. The ATO found the kitchen table most unacceptable pre-COVID but have since embraced it as a legitimate workspace. Plus, it has plenty of room for a refreshing 4pm cocktail.

However, you’ll need a specific home office set aside if you want to claim your Glen 20 or other cleaning costs. Confusing huh?

Now here’s the real kicker. Under the old rules you could use any four-week period to represent an estimate of your work-from-home hours. You still could up until 28 February 2023. But from 1 March you need a written record of every hour worked from home. This might be timesheets, computer logs, or perhaps you can complete a good old-fashioned diary at the end of each day as you sip away at your mojito.

How refreshing!

Key points:

• To make a claim using the new hourly rate you must keep a record of all hours worked from home from 1 March 2023
• Additionally you’ll need a copy of an invoice for each type of expenses (electricity, mobile phone, internet etc.)
• We don’t need to see your records, but you need to use these to tell us at year end how many hours you worked from home so we can calculate your claim.   

Related blog:

Home office vs place of business

Author: Mark Douglas
Email: mark@faj.com.au