Guidance on Travel Allowance vs Living Away From Home

It is important to distinguish between a travel allowance and a living away from home allowance (LAFHA) as they are taxed very differently.

A LAFHA is paid from an employer to an employee to cover the additional costs of temporarily living away from their normal residence to perform employment duties. The payment is tax free in the hands of the employee and should not be included as assessable income in the employee’s tax return. The employer will be subject to Fringe Benefits Tax on the LAFHA.

Any expenses incurred by the employee which have been covered by a LAFHA are not deductible as they are deemed to be private in nature and not incurred in the course of earning income.

Travel allowances are classed as assessable income for the employee and the costs associated with the travel are tax deductible. Such costs can include meals, accommodation, transport and incidental costs. To be classified as a travel expense the travel must make the employee stay away from home over night to perform employment duties. These costs are tax deductible as they have a sufficient close connection with employment duties.

The ATO has recently stated at if all the below are satisfied the allowance will be deemed a travel allowance:

The Employer:

  • Provides an allowance to an employee or pays or reimburses accommodation and food and drink expenses for the employee.
  • Does not provide the reimbursement or payment as part of a salary-packaging arrangement and the employee is not given the option to elect to receive additional remuneration.
  • Includes the travel allowance on the employee’s payment summary or income statement and withholds tax (if applicable).
  • Obtains and retains the relevant documentation to substantiate the fact that all of these circumstances are met.

The Employee:

  • Is away from their normal residence for work purposes;
  • Does not work on a fly-in fly-out or drive-in drive-out basis;
  • Is away for a short-term period being no more than 21 days at a time continuously and an overall aggregate period of fewer than 90 days in the same work location in an FBT year;
  • Must return to their normal residence when their period away ends

Other related blogs:

Claiming travel expenses using the substantiation method
Employee travel expenses and deductibility

 

Author: Rhys Frewin
Email: [email protected]

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Are donations to crowdfunding platforms deductible?

Crowdfunding platforms like gofundme have become an increasingly popular method for individuals, businesses and charities to fundraise online. It generally involves the entity setting a fundraising target, then appealing to the public for donations in order to reach that target. Many taxpayers are aware that donations made to charities are tax deductible, but what most find surprising is that donations to crowdfunding platforms generally are not deductible. The reason is to do with the Australian Tax Office’s definition of what is considered to be a ‘deductible donation’.

In order for a donation to be tax deductible, it must meet the following criteria:

  • The donation must be made to a deductible gift recipient
  • It must truly be a gift or donation, meaning you voluntarily transfer the money without expecting to receive any material benefit at all
  • The donation must be money or property
  • It must comply with any relevant gift conditions (this is applicable to some deductible gift recipients)

The issue with individuals, businesses and charities on crowdfunding platforms is that commonly they are not registered as deductible gift recipients (DGR), therefore any donations to these entities are not tax deductible as per the ATO.

The best way to confirm that the charity you wish to donate to is a DGR is to check that they are listed on the ABN Lookup’s list of DGR funds & endorsed entities. This can be found by following the link below.

https://abr.business.gov.au/Tools/DgrListing

Related blogs:

ATO reminder about deductibility of donations
Is my deduction tax deductible?

Author: Tessa Roberts
Email: [email protected]

 

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What happens to employees on sale of a business?

Changes in the structure or ownership of a business is a common thing in modern society, however this does not automatically mean that when a business is sold, that everybody, from employees to employers, always know what they are entitled to or is required by them.

A share or equity sale occurs when an employer purchases a business structure (such as a company or trust) and the business stays the same. In this situation the employer will also take on the employees and will be responsible for their existing entitlements. It is important for the buyers to ensure that the employees entitlements are being calculated and paid correctly as they will inherit any associated liabilities.

An asset sale occurs when the buyer opts to purchase the assets of a business, such as client lists, business name and trademarks, and these assets are transferred to the buyer’s existing business structure as opposed to taking over the seller’s entity.

After a business has been sold by way of asset purchase, the new employer must recognise an employee’s service with the prior employer in reference to entitlements such as:

  • Sick & carer’s leave
  • Requests for flexible work arrangements
  • Parental leave

However there are also a variety of entitlements which the new employer is not obligated to recognise and includes the following:

Redundancy

  • A new employer who is not associated with the previous employer can choose not to recognise an employee’s redundancy entitlements, and in this case the previous employer will be required to pay the entitlements upon the employees termination.
  • An employee will not be entitled to receive redundancy entitlements if they reject the new offer of employment, which was on similar terms to the previous contract.

Annual Leave

If the employers are not associated entities then the new employer is not obligated to recognise an employee’s annual leave, and in this case the old employer will be required to pay out the employee’s annual leave upon the transfer. Often annual leave obligations are negotiated as part of the sale contract.

Long Service Leave

A new employer may choose not to recognise an employee’s prior service in terms of long service leave if the following occur:

  • If at 31st December 2009 the employee was not entitled to a long service leave agreement under a registered agreement.
  • There was a new agreement made from 1st January 2010 that replaces the old agreement.
  • The new agreement says that the employees prior service under the old agreement does not count towards their long service leave entitlements.

Unfair Dismissal

A new employer is not obligated to recognise prior service in relation to unfair dismissal if the following apply:

  • The employee is a transferring employee
  • The employers are not associated entities
  • The new employer provides the employee with a written notice prior to employment commencing that prior service would not be recognised

Notice of Termination

When a business is transferred, an old employer is required to give notice of termination to employees or alternatively provide payment in lieu. This is because when a business transfers the employee’s position is terminated with the old employer.

If however, an employee is terminated by the new employer after the transfer has taken place, then the employer must also give notice of termination and the termination pay amount will be calculated based solely on the service after the sale or transfer has taken place.  

As an employee it is important to know that your prior service and entitlements should generally be recognised by the new business owner. If not, you should question this with the new employer and you can contact FairWork for further information and advice.

 

Author: Molly Ingham
Email: [email protected]              

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The R & D Tax Concessions – Is your Company Eligible?

In order to promote research, development and innovation in Australia, the Australian Government offers tax incentives to eligible Companies.

Currently, the R & D Tax concessions entitle an eligible Company to a 43.5% refundable tax offset if the entity’s turnover is under $20 Million, or a 38.5% tax offset for Companies with turnover more than $20 Million. This means a Company making a profit would pay less tax and a Company that makes a loss can receive a cash refund based on their R & D expenses.

To work out if your business is eligible, you need to work through a couple of steps:

Step 1 – The operating entity must be a Company and be either incorporated in Australia, an Australian resident Company or both a resident of a Country with which Australia has a double tax agreement and carrying on a business in Australia through a permanent establishment.

Step 2 – The R & D activities must meet the requirements in the R & D Tax Incentive guidelines. You need to register your R & D Activity with AusIndustry within 10 months of the end of the income year in which you conduct your R & D activities. If your R & D activities meet the requirements you are issued with a registration number which then allows you to claim the R & D Incentive Offset in your Company tax return.

The R & D tax incentive registration process is a self-assessment system, but AusIndustry may review your application, so you need to make sure you meet the requirements yourself before applying.

At a high level, R & D activities are experimental activities:

  1. Whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
    • Is based on principles of established science
    • Proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions; and
  2. That are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

You are expected to search worldwide for an existing way to achieve your outcome before you start your R & D activity. That is, if it already exists, then your R & D activities are not eligible.

Record keeping is very important when making R & D tax incentive claims. As an example, the AusIndustry R & D tax incentive guide lists the following expectations:

“We expect you to be able to provide evidence that shows how you conduct, or plan to conduct, core R&D activities:

  • that are based on principles of established science
  • whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience worldwide
  • whose outcome can only be determined by applying a systematic progression of work – hypothesis, experiment, observation and evaluation, leading to logical conclusions
  • for the purpose to generate new knowledge
  • that are not excluded from being core R&D activities

We expect you to keep records of activities that you register or plan to register for the R&DTI

In your systematic progression of work, we expect to see details of how you:

  • develop your hypothesis
  • design your experiment
  • observe and record the results of your experiment
  • evaluate your results
  • reflect conclusions about your results. Do they support your hypothesis or generate other new knowledge?”

Claiming the R & D Tax Incentive can be a complex process requiring both scientific knowledge, along with excellent record keeping and the correct accounting set up to keep track of core and supporting activity costs. Due to this, many businesses wanting to claim the incentive turn to specialists in this area.

If you don’t want to engage a specialist, another option to determine your Company’s eligibility is to submit an ‘Advance Finding’ form. This online form takes you through a long series of questions about your R & D activities and once submitted and assessed will give you assurance about your eligibility.

Advance Finding forms can be found at:

https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/apply-for-an-advance-finding

For more detailed information on claiming the R & D tax incentive visit

https://www.ato.gov.au/Business/Research-and-development-tax-incentive/Checklist-for-claiming-the-R-D-Tax-Incentive/

This page has a link to the ‘R & D tax incentive guide to interpretation’ which is a great starting point if you are thinking about claiming the incentive.

Other related blogs:

What is the research and development tax offset?

Author: Heather Cox
Email: [email protected]

 

 

 

 

 

 

 

 

 

 

 

 

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ATO guidance for distribution of professional firm profits

If you operate a professional services firm now is the time to assess how your professional firm profits are being distributed. The ATO has recently issued new guidance that expresses concerns about profit allocations that might allow professional practitioners to avoid paying their fair share of tax on the profits of the firm.

The new guidelines will apply from 1 July 2022 to assist professional firm practitioners to assess if their current arrangements are within the ATO’s expectations and considered low risk. Professional firms can include but are not limited to, engineering, architecture, accounting, law, financial services, law, medicine and management consulting.

Under the new guidelines, you will need to assess the firms profit allocation arrangement against two ‘gateways’.

The first gateway is the ‘Commercial Rationale’ of the arrangement. The decisions behind the arrangements of the firm and the way in which profits are distributed should be commercially driven. For example, the remuneration received by a professional from the firm should be paid on commercial terms as reward for their personal efforts and skills. Actions taken to gain a tax advantage rather than achieve a commercial objective will not meet the first gateway.

The second gateway is concerned if the practitioner’s arrangement contains any ‘high-risk features’. The guideline outlines a number of high risk features to consider such as non-arm’s length finance arrangements or issuing multiple classes of shares to non-equity holders.

If both gateways can be satisfied, the individual practitioner may use the risk assessment framework to self-assess which risk category they belong, which in turn gives an indication to the potential ATO attention they may receive.

 

Risk Assessment factor Score
1 2 3 4 5 6
(1)  Proportion of profit entitlement from the whole of firm group returned in the hands of the individual professional practitioner

 

  

>90%

  

>75% to

90%

  

>60%

to

75%

  

>50% to

60%

  

>25% to

50%

  

25%

or

less
(2)  Total effective tax rate for income received from the firm by the individual professional practitioner and associated entities

 

  

>40%

  

>35% to

40%

  

>30%

to

35%

  

>25% to

30%

  

>20% to

25%

  

20%

or

less
(3)  Remuneration returned in the hands of the individual professional practitioner as a percentage of the commercial benchmark for the services provided by the firm  

>200%

  

>150% to 200%

  

>100% to

150%

  

>90% to 100%

  

>70% to

90%

  

70%

or

less

When applying the risk assessment factors, you may use factors one and two only, or alternatively all the three. The third factor relies on a commercial benchmark which may be hard to ascertain.

After determining which score your arrangement falls into, you can then self assess if you are low, moderate or high risk. The lower the risk level, the less likely the ATO will analyse the arrangement and potentially proceed with an audit.

Risk Zone Risk Level Aggregate score against the first two factors Aggregate score of all three factors
Green Low 7 or less 10 or less
Amber Moderate 8 11 and 12
Red High 9 or more 13 or more

For example, an individual professional practitioner who receives 100% of the profit would fall into the category of low risk.

By assessing your risk level you can determine if a change is needed and potentially reduce future headaches from the ATO. The risk assessment and guidelines can be complicated; it is important to speak to your accountant if you are concerned about the commerciality of your firm’s arrangement or profit allocations.

Author: Allan Edmunds
Email: [email protected]

 

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Finalising Single Touch Payroll at year end

Finalising Single Touch Payroll (STP) is the equivalent of writing up Group Certificates in the “old days”. Here’s how you now do it.

Firstly, at least one pay run needs to be filed using your STP software before you can finalise your STP data for that financial year and it’s important to make all wage payments prior to the end of June 30 so that they will be included in that financial year. Pays recorded in July which include June pay dates aren’t included in the finalised year.

You should fix any incorrect pay runs and check that all pay runs have been accepted by the ATO.

Ensure you have entered all pay runs for the financial year and notified the ATO of any terminated employees. Check the verification report year to date totals in your software against your payroll reports.

Enter any Reportable Fringe Benefit amounts if applicable and check any termination amounts paid to employees.

You need to finalise your STP declaration by the 14th July each year. Once the STP finalisation has been accepted by the ATO you can notify your employees that their Income statements are tax ready. Your employees will then be able to access their Income Statement via their myGov account and lodge their year end tax returns.

Please contact us if you need any assistance in finalising your STP at year end.

Other related blogs:

Single Touch Payroll STP starts for closely held payees from 1 July 2021

Author: Kay Giles Email: [email protected]

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How to record your crypto transactions

The tax implications of crypto trading are not yet well understood. Every time you sell or swap one cryptocurrency for another, a capital gain event is likely to have occurred, and knowing how to record your crypto transactions can be a challenge.

Depending on your level of crypto trading calculating the capital gain or loss made on each sale can be a timely process. This is due to a number of factors such as –

  • The total number of crypto transactions made during the financial year – for some it’s hundreds or thousands.
  • The dates and amounts for both the original purchase and sale are required.
  • At times you might only dispose part of your holding at a time, requiring an apportionment of the original cost to be applied to the sale.
  • At times you may also be swapping one coin directly for another coin, each swap is considered as a buy & sell transaction.
  • You may also be purchasing a number of coins at once as part of a bundle purchase.

Most platforms used to trade cryptocurrencies (such as Coin Spot, Coinbase & Swyftx) provide you with a year end trading report, however generally these reports just give you a transaction listing for each buy and sell made using that platform. They don’t actually calculate the capital gain or capital loss made on each transaction for that financial year. Asking your accountant to manually work through the year end report generated by your trading platform is a timely process and will result in a significantly higher fee for the time taken to prepare your income tax return.

Fortunately there are now some third party software providers that can assist if you are happy to upload or link your trading data. We do not endorse any particular provider but have provided some sites that we’ve seen clients using to date:

It’s important that you do your own research before you subscribe to a particular service as there are different packages and options – such as allowing direct access to your trading platform to automatically obtain future transactions.

Also be mindful that it’s fairly new territory and the software might not be perfect. It’s always your responsibility to review the report to ensure that it is accurate and reflects your trading activity. We haven’t noticed any major issues so far, although we’re aware there may be reporting inaccuracies where clients have transferred the coins from one wallet to another and not necessarily sold them.

The subscription cost to these platform will be tax deductible so please remember to keep a copy of your invoice.

Other related blogs:

Tax treatment of crypto trading
Buying Bitcoin will I pay tax?

Author: Rhys Frewin
Email: [email protected]

 

 

 

 

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New director ID rules

In June 2020, the Australian government announced new director ID rules and established the Australian Business Registry Services (ABRS) which will be responsible for the implementation and administration of the new Director ID regime. This regime introduces the Director ID – a 15 digit unique identifier given to a director, or someone who intends to become a director. This identifier stays with the individual permanently.

Purpose of a Director Identifier Number (DIN)

The DIN is the first service to be implemented by the ABRS, which aims at creating a single source of reliable information. The aim is to help:

  • Prevent the use of false or fraudulent director identities
  • Make it easier for external administrators and regulators to trace directors relationships with companies over time
  • Identify and eliminate director involvement in unlawful activity such as phoenix activities

Who needs a Director ID and when?

You will need a Director ID if you are an eligible officer of:

  • A Company, a registered Australian body or a registered foreign company under the Corporations Act 2001.
  • An Aboriginal or Torres Strait Islander corporation registered under the Corporations Act 2006.

You can apply for a Director ID now. If you plan to become a director, you can apply before being appointed. Below are some important deadlines for having your Director ID.

Date you become a director Date you must apply
On or before 31 October 2021 By 30 November 2022
Between 1 November 2021 and 4 April 2022 Within 28 days of appointment
From 5 April 2022 Before appointment

Applying for a Director ID

The process is not difficult provided you have set up your myGovID first. In order to set up your myGovID online, you will be required to provide information such as your TFN, address and two documents to verify your identity. Alternatively you can call the ATO or complete a paper form and lodge it with certified documents.

Once you get your ID you keep it forever even if you cease to be a director. Any details that change after applying for your Director ID may be changed through the ABRS website.

If you’re currently a director of a company, or about to become a director you may as well apply for your Director ID now. There’s little point in deferring and risking a penalty down the track.

Visit the ABRS website for more information about director ID.

Related blogs:

What company debts can a directors be personally liable for?

Author: Caleb Datson
Email: [email protected]

 

 

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Tax treatment of crypto trading

With a market value of more than $2 trillion US dollars it is no wonder investors, share traders and even your friends are swarming to the digital gold rush that is crypto trading. However it is important to understand the implications that holding and trading cryptocurrencies such as Bitcoin and Ethereum may have on your annual tax return.

The term cryptocurrency is used to describe a digital asset that cannot be easily created through the use of encryption techniques and verification from multiple networks (called the block chain) to ensure the validity of the asset. As a result of these techniques, cryptocurrencies operate independently from the central bank and government.

There are three different ways the ATO will treat cryptocurrency depending on how and why you are holding it.

The first and most common is the treatment when held by an investor. For most people (investors) your cryptocurrency will be held on a capital account meaning you will not have to pay tax when you purchase a cryptocurrency or if there is a change in market value while you are holding it. However when you do decide to sell or dispose of your cryptocurrency you may have to pay capital gains tax (CGT). Even if you sell a currency and immediately buy another, this is still considered a sale for CGT purposes. An advantage of holding crypto on capital account is that if you hold it as an investment for more than 12 months you may be entitled to a 50% CGT discount (which means you’ll only pay tax on half of the gain).

The second (and less common) approach is when cryptocurrency is deemed to be trading stock. This is where the holder is classified as a share/crypto trader (someone who undertakes business activities for the purpose of earning income from buying and selling shares and/or crypto) and is held instead on revenue account. Proceeds from the sale of cryptocurrency instead are deemed ordinary income and the cost of acquiring cryptocurrency a deductible business expense. An advantage of holding cryptocurrency as a trader is that your losses from the sale of crypto can sometimes be offset as a deduction against your other sources of income whereas losses from the sale of crypto on capital account can only be used to offset other capital gains.

It is important to understand that you can’t choose between these two methods. You are taxed as either a trader or an investor based on the facts. To determine if you are a trader, the ATO looks at the following factors:

  • What is the nature and purpose of your activities, is the intention to make a profit and is there a business plan in place?
  • How repetitive, regular and voluminous are your activities? The higher the volume the more likely a business is being carried on. A business would be regularly and routinely trading cryptocurrency.
  • Are your activities organised in a business-like way? This primarily relates to the record keeping of share/crypto transactions. Does the share/crypto trader produce annual reports and have qualifications, expertise or training in the market.
  • How much capital is invested? The size of holdings compared to personal capital may be taken into account when determining if someone is a share trader or simply an investor. However this is not a critical factor as it is possible to carry on a business with very little capital.

The third way is when cryptocurrency is classified as a personal use asset, whereby capital gains or losses that arise from the disposal of these assets may be disregarded. Cryptocurrency is considered a personal asset only when it is kept and used primarily to purchase items for personal use only.

Other related blogs:

Buying Bitcoin will I pay tax?

Author: Rhys Frewin
Email: [email protected]

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Can I claim personal super contributions in my tax return?

You may be able to claim personal super as a tax deduction when you contribute your own after tax money into your super fund. Making a personal contribution into your superfund can have several benefits, including savings on tax and increasing your superannuation balance for retirement.

In order to claim a deduction for personal contributions (known as concessional contributions), there are a few steps that must be completed:

  1. You need to deposit your contribution into your superannuation account before the end of the financial year (recommend well before 30 June as it can take some time to process).
  2. You must notify your superfund that you intend to claim a tax deduction. To do this, you should complete a ‘Notice of Intent’ and send it to your fund.
  3. You will then receive back an ‘Acknowledgement letter’ from your superfund. This allows you to claim your contribution as a deduction in your tax return.

Pro tip: If you’ve made a personal concessional contribution into a fund and are rolling funds from that fund to a new fund, you must lodge your notice and receive an acknowledgement from the old fund before doing the rollover. If you wait until year end, your old fund will no longer exist if there is no balance remaining. There are also issues with getting a notice of intent if you partially rollover or withdraw within the year as only partial amounts may be deductible for the contribution made during the year. If you think this may apply to you, please see the link below for more information.

https://www.ato.gov.au/forms/notice-of-intent-to-claim-or-vary-a-deduction-for-personal-super-contributions/?page=7

Unfortunately not everyone is eligible to claim a deduction for personal concessional super contributions as there are age restrictions. The below shows the different age criteria for making concessional contributions.

  • Under 67: You can make concessional contributions.
  • 67 to 74: You must pass a work test to make concessional contributions.
  • 75 and over: You cannot make concessional contributions.

Additionally concessional contributions from all sources (including what your employer contributes for you) are currently limited to $27,500 per person per year.

If you are thinking about putting extra money into your super and claiming a tax deduction, and are still unsure if you will be eligible or if it will be beneficial in your circumstances, see the link below for more information.

https://www.ato.gov.au/individuals/super/in-detail/growing-your-super/claiming-deductions-for-personal-super-contributions/

Other related blogs:

What happens if I make excess contributions to super?
Contributing to super – options for employees
Carry forward concessional contributions – what are the rules?

 

Author: Caleb Datson
Email: [email protected]

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