Many businesses breathed a collective sigh of relief when the Instant Asset Write Off (IAWO) Scheme was first introduced, due to changing market conditions at the height of the COVID-19 pandemic. The scheme, which has now been extended to 30 June 2023, allows eligible entities to claim an immediate deduction for many depreciable assets, rather than expensing them over their effective lives.

The new rules have been designed to offer temporary tax relief while encouraging businesses to bring forward investments that they may have been looking to make over coming years.

There are some items that need to be considered before utilising these measures, as it may not necessarily be the most tax effective approach in the long run. These are:

  • Cash flow should be reviewed, as investing in an asset sooner than predicted could lessen the funds available for the day to day running of the business now and in future years.
  • Marginal tax rates should be considered. A deduction may result in taxable income dropping into a lower tax bracket. This means that you may not be able to take full advantage of the deduction and it may be less tax effective than traditional depreciation methods.
  • Claiming an immediate deduction will also decrease taxable income to an unusually low rate. This in turn may artificially decrease PAYG instalments the following year, resulting in a larger than usual tax bill.
  • Businesses are advised to look at the long-term effect that IAWO may have on taxable income in comparison to spreading the deduction over the effective life of an asset. If your business is in a break even position, or operating at a loss, there is no real benefit to claiming the deduction out right.
  • When an asset, such as a car, is fully expensed when purchased, it must be remembered that the proceeds on sale need to be declared in full if this asset is sold. This could result in a higher than usual tax bill.
  • If the simplified depreciation rules are used by a Company, and a tax loss results, this loss cannot be distributed to shareholders.
  • If the business is operated by a Trust and goes into a loss position, franking credits on any dividends received will not be able to be utilised.

As always, it is important to consult your Accountant when deciding which approach to take and they will be able to assist you to opt out, should you wish to.

Related Blogs

$150,000 Instant asset write off – do I have to use it?
Company carry back losses – what are the rules?

Author: Joanne Humphreys
Email: [email protected]

 

The super guarantee system, where employers now contribute 10% of wages to super for their employees has been largely successful in providing better retirement incomes for working Australians since its 1992 introduction.

It’s also had its fair share of problems, one of those being that employees end up with multiple super accounts (there’s currently around 6 million) as they move jobs. Many of these accounts end up either lost or eroded by fees and insurance premiums.

Under current rules, if you start a new job and don’t nominate a super fund, your employer will open a new account in a default super fund selected by the employer.

New rules will commence from 1 November 2021 whereby you will keep the same stapled super fund when you move from job to job – i.e. your fund will be “stapled” to you (sounds like a malicious office incident). Treasury has estimated that Australian workers will save $2.8 billion over the next 10 years under these stapling arrangements.

All employers will be obligated to apply these rules for new workers that commence from 1 November. If you’re an employer, here’s what you’ll need to do.

First, within 28 days of their start date, you’ll have to offer your new employee the usual choice of fund using the Super Standard Choice Form. No changes there. If they fail to nominate a fund, you’ll need to log into ATO online services and provide some basic information about the employee. The ATO will respond to you online within minutes, and if the employee has a stapled fund you must contribute to it. They will also advise the employee that the request was made.

If for some reason the employee doesn’t have a stapled fund, then you can add them to your default fund.

Oddly, employees with multiple super accounts don’t get a say in which fund becomes their stapled account. The ATO will determine this using tiebreaker rules set out in the legislation. Generally the stapled fund will be the fund the employee last received contributions into, otherwise the rules look for the largest account balance, then the newest creation date.

To override the tiebreaker rules an employee will need to use the Super Standard Choice Form when they commence employment.

Employees should also be aware of the new YourSuper tool which enables them to compare super funds ranked by fees and investment returns, with a prompt to consolidate accounts if they have more than one. You can also search for any lost super through your myGov account.

Related blog:

Penalties for late payment of super guarantee
Contributing to super – options for employees

Author: Mark Douglas
Email: [email protected]

 

 

 

A re-contribution strategy involves withdrawing a lump sum from your super fund, paying any necessary tax on the withdrawal and re-contributing these funds back into super as a non-concessional (after-tax) contribution.

The revised superannuation balance will potentially consist of all, or more, tax-free component, which may ultimately reduce the tax payable when funds are withdrawn my a member or paid to beneficiaries upon death.

This opportunity may best arise between ages 60-65 when members can draw superannuation out without incurring tax, and still have the ability to meet the contribution rules.

To determine the validity of a re-contribution strategy, it is important to understand if your superannuation benefits are categorised as tax-free and/or taxable components.

  1. Tax-free components

The tax-free component of your super balance is generally the contributions on which you have already paid tax, so you don’t pay tax on them again when they are withdrawn. Tax-free components include your non-concessional (after-tax) contributions.

  1. Taxable components

The taxable components of your super balance are generally your concessional (pre-tax) contributions such as super guarantee (employer contributions) and salary sacrifice contributions.

Ultimately, you want your super balance to have a high tax-free component and a lower taxable components to reduce the potential tax payable when your super is paid out of your super fund upon a condition of release being met.

Disadvantages of a re-contribution strategy

  • This strategy may cause your assessable and taxable income to increase for a particular financial year. A higher assessable income and taxable income may lead you to pay more tax.
  • You also may be liable to pay tax on the lump sum withdrawal from superannuation if you are aged below 60.
  • When re-contributing, any amount that is in excess of the non-concessional cap will incur a penalty tax. The non-concessional (after-tax) contribution cap is $100,000 in 2020-21 or $300,000 if you are eligible to use a bring-forward arrangement.
  • Withdrawing a lump sum and re-contributing into your super account could affect both your total super balance (TSB) and transfer balance cap. As at 30 June 2021, your TSB needs to be under $1.6 million to make a non-concessional contribution.

Related blogs:

What happens if I make excess contributions to super?
How can you access your super?

Author: Jesper Lim
Email: [email protected]

 

Taxable Payments Annual Reporting (TPAR) is where businesses report to the ATO the total payments they make to contractors for services in a financial year. The contractors can operate as any entity structure – sole trader, company, partnership or trusts. The TPAR does not result in additional payments or tax; it is simply reporting information to the ATO.

The ATO uses the information reported to data match what is declared on contractors taxable income and activity statements. The ATO will then know if contractors have failed to lodge a return or activity statement, failed to register or declare GST on their activity statements or haven’t declared their full revenue on a tax return.

Not all businesses need to prepare Taxable Payments Annual Reporting each year. It is only a requirement for industry specific businesses which include:

  • Building & construction services
  • Road freight & courier services
  • Cleaning services
  • IT Services
  • Security, investigation & surveillance services

Not all payments a business makes need to be reported on TPAR; it is only for payments to contractors for their labour. You do not need to report payments for materials, incidental labour, invoices unpaid at 30 June, payments within a consolidated group and contractors without an ABN.

For each contractor you need to report the following:

  • ABN
  • Address
  • Name (Business name/ Individual name)
  • Gross amount paid
  • GST paid (if applicable)

It is important to keep records of the above when payments are made to contractors to make completing the TPAR a lot faster, rather than having to chase information from contractors when the report is due.

TPAR needs to be lodged by the 28th of August after each financial year and penalties can apply if the reports are lodged late. The form can be lodged through a few different methods – paper form, lodging through an accounting software and lodging through the online business portal.

Other related blogs:

Employee or contractor – the risks of getting it wrong
When do I need to pay super for contractors?

Author: Rhys Frewin
Email: [email protected]

 

Understanding the tax consequences of buying a work vehicle can be complex and confusing.

The general concept is that if you buy a motor vehicle for work related travel, you are able to claim the work portion of the expenses incurred as a deduction, however under current temporary tax measures there are some circumstances where you can claim the cost of the vehicle.

How you claim a deduction for these expenses depends on many factors, such as if you are an employee or sole trader, what type of vehicle you purchase and if there is any private use of the vehicle. See below for a discussion on the factors which determine what method will be most tax effective for your situation.

Cents per kilometre vs logbook method

If you are an employee or a sole trader, you can either claim your car expenses using the cents per kilometre method or the log book method.

Under the cents per kilometre method, you can claim up to 5,000 kilometres of work related travel at a rate prescribed annually by the ATO. For 2021, this works out to a maximum deduction of $3,400. This method requires the least amount of administration as you do not require written receipts to substantiate your claim, but you do need reasonable evidence that you actually traveled the kilometres for work purposes.

The other method to claim car expenses is known as the logbook method. To claim under this method, you need to keep a logbook for 12 continuous weeks detailing all your work related travel to give you a log book percentage. If the logbook states your travel is 70% work related for example, then you can claim 70% of all your vehicle expenses, including depreciation of the vehicle and financing costs. The logbook is valid for 5 years, unless your circumstances change.

One key difference between these methods is that you cannot claim anything for the capital cost of your car under the cents per kilometre method. This is because the prescribed ATO rate already takes the car depreciation into account. On the other hand, the logbook method allows you to claim a depreciation deduction for the work-related portion of the cost of the vehicle.

Further, if you are a sole trader and use the small business concessions, you are currently eligible to claim the work-related portion of the full cost of the car in the year of purchase. The flip side to this is you will also need to declare the proceeds on the eventual sale of the vehicle as assessable income, which is taxed at your marginal tax rate in the year of sale.

Car vs Ute or Van

If your vehicle isn’t considered to be a car for tax purposes, you cannot claim using the cents per kilometre method. Rather, you must claim the portion of your vehicle expenses that relate to work use. A vehicle is not considered to be a car if it has carrying capacity of one tonne or more, or if it is able to carry nine passengers or more (for example, some utes and vans). The ATO states you do not need to keep a logbook to determine the work related use percentage for these vehicles, but it is recommended. It is important to note that not all utes and vans satisfy these conditions, so it is important to confirm the carrying capacity for your vehicle.

Car Cost Limit

If you are claiming car expenses under the logbook method, you can claim the work related portion of the cost of your vehicle up to the car cost limit. This is the maximum value you can use to calculate your depreciation claim. The car cost limit changes yearly – for 2021 it is $59,136 (GST inclusive). As an example, if you are a sole trader registered for GST and purchased a car in the 2021 year for $80,000, the most you can claim is 10/11ths of the car cost limit as a depreciation deduction, which is $53,760. You are also entitled to claim back $5,376 as a GST credit.

Related blogs:

Claiming vehicle expenses using a logbook
New guidelines for FBT exempt motor vehicles

 

Email: [email protected]

“We make a living by what we get. We make a life by what we give.” Wise and inspirational words from Winston Churchill.

Around four million taxpayers each year make almost $4 billion of tax-deductible donations to various charities around the country. West Australians top the list for the average amount of donation per person. But not everyone understands the rules around the deductibility of donations.

Those that give may be rewarded through our tax system by receiving a tax deduction for donations given to certain organisations, known as Deductible Gift Recipients (DGRs). But like many components of our complicated tax system, the integrity of the rules is exposed to misunderstanding and misuse.

In the 2019 year, nearly two thirds of the charitable donation claims that were adjusted by the ATO were because the taxpayer could not prove they had made the donation. For this reason the ATO has put out a timely reminder, listing the four main reasons that donations may or may not be tax-deductible.

Firstly, the donation can only be deductible if it is made to an organisation that is endorsed as an Australian registered DGR. An organisation’s DGR status can be checked using the on-line ABN lookup tool at abr.business.gov.au. It’s important to understand that not all charities and not-for-profits are DGRs.

Crowd-funding is proving popular as a modern means of charity, but crowd-funding contributions will rarely be tax-deductible unless the funding organisation is a DGR. Foreign charities are also often not registered as an Australian DGR.

Secondly, donations are generally not tax-deductible where the taxpayer receives or expects to receive a monetary or personal benefit in return. Common examples include buying raffle tickets or chocolates for fundraising purposes, although receiving a token like a pin, wristband or sticker will not deny you of your deduction. Some crowd-funding models also provide reward in return for payments and would therefore not be deductible, regardless of DGR status.

The third reason is based on record-keeping. Most charities issue receipts for donations, but some don’t. Where you have third party evidence like a credit card statement that makes it clear you have donated to a DGR, the ATO will likely accept your claim. They’ll also accept a claim for bucket collections of $2 or more without receipts up to a maximum of $10 per year.

Lastly, the ATO says that some people incorrectly claim deductions for donations they intend to make in their will, or claim for workplace giving that has already reduced taxable income through the payroll system.

Donations made by the executor of a deceased estate are never tax-deductible, so if this is part of your estate planning strategy you should chat to your tax advisor to ensure you get the best outcome.

Related blog:

Is my donation tax deductible?

Author: Mark Douglas
Email: [email protected]

Fuel tax credits provide businesses with a credit for the tax included in the price of fuel used for certain activities. The tax credits are reported in an entities Business Activity Statements (BAS). Fuel tax credits apply to fuel used for:

  • Machinery
  • Plant
  • Equipment
  • Heavy vehicles (gross vehicle mass above 4.5 tonnes)
  • Light vehicles travelling off public roads or on private roads.

To calculate the fuel tax credit amount on each BAS, you multiply the litres of fuel purchased in the relevant period by the current ATO-specified rate. The rate is determined by several factors, including the type of fuel, when the fuel was acquired and what it is used for. Rates for calculating the credits are updated regularly, so it is advised that you check the rates every time you lodge a BAS.

Eligibility

To be eligible for the credits, you must:

  • Be registered for GST when you acquired the fuel
  • Be registered for fuel tax credits at the time you lodge the BAS.

In order to claim fuel tax credits, your business must purchase fuel to be able to produce income (this excludes general transport). Some examples of industries that claim fuel tax credits include:

  • Road transport businesses
  • Mining (machinery, generators)
  • Fishing
  • Agriculture
  • Construction
  • Non-fuel uses such as:
    • Fuel used to clean machinery
    • Diesel sprayed onto road as sealant
    • Fuel used as an ingredient for production (paints, ink)

Fuel tax credits are classified as assessable income, so it is important to declare them in your tax return.

If you are still unsure about whether your business is eligible to claim fuel tax credits, see the link below for further information:

https://www.ato.gov.au/Business/Fuel-schemes/Fuel-tax-credits—business/

Other related blogs:

Record keeping for small business

Author: Caleb Datson
Email: [email protected]

 

Single Touch Payroll (STP) was introduced by the ATO to replace the PAYG Payment Summaries system, requiring employers to report their payroll information in real time. Most employers now report payroll data to the ATO each pay run using STP enabled software. The ATO has recently made STP changes which have taken effect from 1 July 2021.

What has changed for small employers – closely held payees

From 1 July 2021 small employers (with 19 or fewer employees) are now required to report payments made to ‘closely held’ payees through STP enabled software.

Small employers were exempt from reporting closely held payees through STP up until 30 June 2021. A closely held payee is an individual who is directly related to the entity, for example family members of a family business, directors or shareholders of a company, and beneficiaries of a trust.

When to report

There are 3 options to report your closely held payee data:

  1. Report actual payments on or before each pay run
  2. Report actual payments quarterly when the activity statement for that quarter is due
  3. Report a reasonable estimate quarterly

Reporting quarterly means that you only need to lodge an STP report in quarters where you have made a payment that you need to report. Each quarter you still need to include any PAYG withholding amounts on your activity statement, and be sure to make Superannuation Guarantee contributions for your closely held payees before the relevant due date.

If your circumstances change and your reported reasonable estimates in previous quarters are either too high or too low, you have until the due date of your next quarterly STP report to correct a closely held payee’s year to date information. It is important not to underestimate amounts reported for closely held payees as you may be liable for penalties and interest.

How to report

Your best option is to subscribe to a suitable software package. All the major players like Xero and MYOB have stand-alone payroll packages for four or less employees for $10 per month that automate the process.

The ATO maintains a product register to include all available STP software options. This may be through an update to your existing software, or an additional service. Specifically for small or micro employers is a list of no cost or low cost STP software solutions, that cost less than $10 per month.

Each software provider will provide a way to report quarterly closely held payee data in addition to reporting payroll for regular employees each pay day. However, it may be more efficient for you to report your closely held employees at the same time.

End of financial year finalisation declaration

You will need to make a finalisation declaration in your STP enabled software to let the ATO know your STP reporting is complete for an employee for a financial year. This means your employees’ information will be available via myGov rather than on a payment summary.

Small employers with only closely held payees must make a finalisation declaration by the due date of the individual’s tax return, and the due date for arm’s length employees remains 14 July. If you are using the reasonable estimate reporting method you must correct the actual year to date amount paid.

What has changed for micro employers

Until 30 June 2021 a quarterly STP reporting option applied to micro employers (1 to 4 employees). From 1 July 2021 micro employers will need to report their payroll data in real time, or they can continue to report quarterly through a registered tax or BAS agent if they meet the following eligibility requirements:

  • Lodge activity statements electronically through a registered tax agent
  • Have a non-computerised payroll i.e. manually on a paper or a spreadsheet
  • No overdue amounts owing to the ATO or lodgement obligations
  • Meet the ATO’s exceptional circumstances determined on a case by case basis

Exceptional circumstances may include natural disasters, impeded access to records, serious illness or death of a family member, internet issues such as the inability to connect to the internet or an unreliable or slow internet connection, or having seasonal or intermittent workers.

Next phase of STP

From 1 January 2022 extra information will need to be included in your STP reporting for each employee, including their employment basis, itemised payment types that make up the gross amount (e.g. allowances, overtime, salary sacrifice), how they are taxed and details of why their employment has ceased.

Other related blogs:

Single Touch Payroll

Author: Danielle Pomersbach
Email: [email protected]

What is PAYGW?

For those of us who are not so savvy with ATO acronyms, PAYGW stands for Pay As You Go Withholding.

This is a system of taxation that requires employers to withhold a portion of employees’ wages and then pay it to the ATO to offset expected year-end tax liabilities.

The system is usually more convenient for taxpayers, avoiding the accrual of large unexpected tax liabilities and also allows a more even flow of tax revenue for the Government.

What are the risks for failing to withhold?

There can be risks for business owners who are unaware of the PAYGW regime and who may pay cash to employees or pay wages through the Single Touch Payroll system, but who do not withhold the correct amount of PAYGW.

The consequence for failing to withhold tax on an employee’s wages is that an amount equal to the amount of tax not withheld must be paid to the ATO as a penalty.

Where an employer fails to withhold tax from their employee’s wages over a period of years, the penalties in the case of an ATO audit can be substantial and potentially crippling to a small business.

Additional risks for businesses who pay contractors

There can be additional risks for businesses who pay contractors. In some circumstances, despite having a contracting arrangement with an individual, the ATO would regard this person as an employee. Some factors that may indicate that a contractor should really be classified as an employee are:

  1. The employer pays the contractor on an hourly basis for their labour rather than on a ‘results’ basis
  2. The employer supplies any tools/equipment required for the work
  3. The employer is responsible for any warranty or faulty work
  4. The employer holds the workers compensation insurance
  5. The contractor does not have the right to delegate the work to someone else
  6. The business has the right to direct the way in which the worker does the work.

Businesses who use contractors should assess each one to check if they should actually be employed as employees and therefore have PAYGW deducted from their wages.

In the event that the ATO audits the business and classifies any contractors as employees, the ATO could apply the failure to withhold penalties along with interest on amounts from earlier periods. These amounts can be substantial in some cases.

Furthermore, employees who have been wrongly classified as contractors, may have rights to leave and super entitlements from the Employer, adding further costs to the employer’s business.

What do I need to do?

If you are an employer, have a look at the ATO page ‘PAYG withholding’  and register for PAYG withholding if required.

If you are a business that employs contractors, have a go at the ATO’s ‘Employee or contractor decision tool’ for each contractor.

If you need more help, speak to your Accountant or Bookkeeper or contact FAJ on (08) 9335 5211.

Other related blogs:

Employee or contractor – the risks of getting it wrong

Author: Heather Cox
Email: [email protected]

 

 

 

 

 

 

Concessional super contributions are payments put into your super fund from your pre-tax income. Concessional super contributions are tax deductible to the contributor and are taxed at 15% when they are received by your super fund. They include:

  • Employer super guarantee contributions (including contributions made under a salary sacrifice arrangement)
  • Personal contributions claimed as a tax deduction.

The tax advantages that concessional contributions provide is limited subject to an annual cap. From 1 July 2017, the general concessional contributions cap is $25,000 for all individuals regardless of age, and has since increased to $27,500 from 1 July 2021.

From 1 July 2018, members can make ‘carry-forward’ concessional super contributions. The carry forward rule allows individuals to make additional concessional contributions in a financial year by utilising unused concessional contribution cap amounts from up to five previous financial years, providing their total superannuation balance just before the start of that financial year was less than $500,000. Effectively, this means an individual can make up to $150,000 of concessional contributions in a single financial year by utilising unapplied and unused concessional contribution caps from the previous five financial years.

Income year Maximum* CC cap with carry forward rule
2019–20 $25,000 to $50,000
2020–21 $25,000 to $75,000
2021–22 $25,000 to $100,000
2022–23 $25,000 to $125,000
from 2023–24 $25,000 to $150,000

Prior to these amendments, if an individual did not fully utilise their annual CC cap in a financial year, they could not carry forward the unused cap to a later year. This rule constitutes an exception to the usual rule when it comes to concessional contributions: ‘Use it or lose it’.

Related blog:

What happens if I make excess contributions to super?

Author: Jesper Lim
Email: [email protected]