The short cut method for claiming home office expenses

In April 2020 the ATO first announced a new method for claiming home office expenses due to the coronavirus pandemic. The new “shortcut method” allows you to claim a deduction of 80 cents for each hour you worked from home for the periods between 1 March 2020 to 30 June 2020, and from 1 July 2020 to 30 June 2021.

The shortcut method rate covers all running expenses, including:

  • Electricity for lighting, heating & cooling and running electronic items
  • Phone and internet costs
  • Computer consumables e.g. printer ink and stationery
  • The decline in value of home office furnishings and electronic equipment
  • Cleaning expenses

The benefit of the shortcut method is that you do not need to have a dedicated working area in your home, which is a requirement for using the fixed rate method. It is especially useful for people who are working from shared spaces in their home, and multiple people living in the same home can all make claims using the 80c rate.

Additionally the method is very simple to claim, as all you need is a record of the hours you have worked from home. The record can be in the form of a timesheet, roster or diary.

The shortcut method covers all running expenses, so you are unable to claim any other expenses for working from home for that period. If you have large phone or internet expenses, or have purchased a computer for working from home, this likely means that you would be eligible for a larger deduction using another method.

Home office claims can still be made under the existing methods, and you can choose to use the method that allows you the best deduction.

The fixed rate method involves claiming a deduction of 52 cents per hour worked from home, and this rate covers electricity, decline in value and repairs of furnishings. You will separately calculate your work-related use for your phone and internet expenses, computer consumables and depreciation of electronic equipment.

See here for more information from the ATO website on the available methods and record keeping requirements for your home office claim.

Other related blogs:

Home office vs place of business
Wages during lockdown

Author: Danielle Pomersbach
Email: danielle@faj.com.au

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The importance of online

The recent lockdown was another timely reminder for WA businesses that we live in a very uncertain business environment.

With the full lockdown only lasting three days it seems that we once again dodged a bullet. But our luck might run out, and if it’s not because of COVID, it will because of the next big disruptor.

Which makes now a great time to reflect on the importance of online for your business. During lockdown it is the only way for many businesses to transact with their customers. But even if your bricks and mortar business is open, most customers now locate businesses from a google search, including the 62% of millennials who prefer to buy over the net.

Consumers expect you to be online. If you have no online presence, then to many customers you just don’t exist.

They want to be able to locate your business effortlessly, browse services, see prices and make comparisons. Importantly, with an upswing in blower-angst, it’s essential that customers can make that on-line appointment, booking or purchase without having to lift a hand-set.

And don’t forget FAQs. Make sure these are clear and really do answer the questions that people frequently ask, even if they’re tough or awkward.

An online presence gives you access to a wider audience. Customers can make purchases or appointments while you’re closed, and your products will be available to those who can’t make it to your premises, perhaps because of transport issues, disability or time constraints.

Your online presence builds integrity and trust. It enables reviews and comments from satisfied customers and gives you a chance to highlight your expertise in your industry. Even negative reviews can be turned into a positive by publicly reaching out and righting wrongs.

It also provides a great opportunity for marketing. You can access ready-made audiences to market to through social media and subscriptions, and don’t forget those randoms that are browsing your site are already captive – they are there because they’re interested.

To get people to your site you should look at using search engine optimisation (SEO). With a bit of research you can learn the basics of this and common platforms like WordPress have functionality to guide you through it.

An online presence is not just important to grow your business. It’s essential for all businesses. Best estimates are that over 50% of people prefer to search online before making a purchasing decision. Being invisible online is like opening your shop every second day and expecting success.

Related blog:

Is the cost of your new website deductible?

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

 

 

 

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Claiming deductions on vacant land – what’s changed?

As you may have seen in the media, the Federal and State governments have been stimulating the building industry as a result of the downturn in the economy from COVID.

These are temporary incentives to encourage residential and investors into the market and applicants have a limited amount of time to be eligible.   The increased demand for new houses could lead to longer wait times for houses to be built due to shortage of labour which could lead to land being vacant for longer than anticipated.  If you are an investor in this situation, it is important to note that from 1 July 2019 deductions available for vacant land have changed.

What is vacant land?

Vacant land is broadly defined as “land with no substantial and permanent structure on it that is in use or available for use”.

Prior to 1 July 2019 (Old Rules)

Prior 1 July 2019 the ATO were accommodating in recognising the time and common delays that were associated with building a new property.  If the owner was taking active and genuine steps in building a property that would be used to produce income once compete (seeking finance, engaging a builder, architect, real estate agent and council development plans) the ATO allowed a tax deduction for the associated holding costs up front. Holding costs include expenses such as:

  • Loan interest
  • Council rates
  • Land tax
  • Insurance

It is important to note that these expenses are still deductible if you incurred them before 1 July 2019.

From 1 July 2019 (Current Rules)

From 1 July 2019 the holding costs associated with vacant land are no longer deductible. While this is unfortunate, not all is lost. Instead these costs will be added to the cost base of the property and may reduce any capital gains tax payable when you sell the property.

So if you are hoping to take advantage of record low interest rates and build a new investment property it is important to document all of your expenses as you will need these when you come to sell.

As always it is best if you seek advice from an accountant prior to entering into any contract as everyone’s circumstances are different.

Other related blogs

Holding costs and the impact on Capital Gains Tax
Four year construction rule when you buy vacant land or renovate

Accountant: Louise Leafe
Email:louise@faj.com.au

 

 

 

 

 

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Changes to income tax rate brackets – what will it save me?

In the 2018 Federal Budget, the Australian Government introduced the Personal Income Tax Plan, which is a three stage plan aimed at providing income tax cuts to taxpayers over the next seven years.

Stage one introduced a temporary Low and Middle Income Tax Offset. As the name suggests, this was a tax benefit aimed at low and middle Income earners.

Stage 2, announced in the 2020 Federal budget, included changes to personal income tax brackets, which again, was aimed at providing tax savings to low and middle incomes. The changes to resident tax rates, effective from 1 July 2020 include:

  • Increasing the 19% income tax bracket from $37,000 to $45,000.
  • Increasing the 32.5% income bracket from $90,000 to $120,000.
  • Increasing the Low Income Tax Offset from $445 to $700.

While the above applies to individual resident rates, there are also changes to foreign resident and working holiday maker rates which include:

  • Increasing the 32.5% income tax bracket from $90,000 to $120,000 for foreign residents.
  • Working holiday makers will also see an increase in the 15% income tax bracket from $37,000 to $45,000.

So what does this all mean?

The table below shows the tax savings at each income level based on the changes to income tax brackets. As you can see, the tax savings only apply to those earning over $37,000 in income.

Income Savings
less than $37,000                                    –
$37,001 – $45,000  $0 – $1,080
$45,001 – $90,000 $1,080
$90,001 – $120,000  $1,080 – $2,430
$120,000+ $2,430

Stage three of the plan will be introduced in the 2024-25 income tax year with more changes to the tax brackets, resulting in even further tax savings.

Author: Caleb Datson
Email: caleb@faj.com.au

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COVID rent relief rules set to end in March

In March 2020 the WA government introduced a code of conduct to support tenants of commercial properties with COVID rent relief.

This code of conduct was created to ensure businesses survived the economic downturn by assisting commercial tenants and landlords to negotiate a rent relief agreement. The code applied to small businesses with an annual turnover of up to $50 million and that were also eligible for the JobKeeper scheme.

The code allowed tenants who were affected by the pandemic to request rent relief from landlords, who were required to:

  • offer relief at least proportionate to the reduction in turnover that the business had suffered; and
  • waive at least half of that rent, with the balance either being deferred or waived.

Further, rent could not be increased and tenants could not be evicted for not meeting their rent obligations.

These COVID rent relief rules were initially intended to end on 30th September 2020, but as a result of the continued economic effects of the pandemic, the rules were extended until 28th March 2021. Not every tenant qualified for the extension – if, after 30th September 2020, a tenant’s business improved to a point where they were no longer eligible for the JobKeeper scheme, the code no longer applied and no further rent relief was available.

Now that 28th March 2021 is fast approaching, the rent relief provided to the remaining eligible tenants will no longer apply. What will this mean?

  1. Rent obligations that were previously deferred will need to be paid back. Deferred rent will need to be paid over a 24 month period or the balance of the lease term (whichever is greater).
  2. Landlords can take legal action if deferred rent is not paid by the tenants as per the agreement.
  3. Landlords are permitted to take action to terminate or evict tenants if rent is unpaid..
  4. Landlords can start applying rent increases.

If you are experiencing difficulties with your landlord or tenant, the Department of Commerce recommends you contact the Small Business Development Corporation for advice.

For further information, please visit https://www.commerce.wa.gov.au/consumer-protection/commercial-tenancies-covid-19-response

Related blogs:

Wages during lockdown
Why a small business should be using monthly budgeting

Email: tessa@faj.com.au

 

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Home Builders Grants – what’s still available?

2020 saw Australian Federal and State Governments implement an array of incentives to keep Australians in jobs, businesses afloat, and stimulate the economy.  Among these were a number of home builders grants to incentivize home-buyers to purchase new builds or make substantial renovations to existing properties, all the while bettering the economy and the building and construction industry.

HomeBuilder

HomeBuilder was introduced on a Federal level, providing a grant to build a new home or renovate an existing home. Initially, this incentive was intended to cease at the end of 2020, however the Federal Government have extended the program until 31 March 2021.

For any contracts signed between 4 June and 31 December 2020, a $25,000 grant is available, whereas any new contract signed between 1 January and 31 March 2021 is eligible for $15,000.

Although HomeBuilder is a Commonwealth initiative, it is administered by State and Territory Revenue offices and is also where you will find the relevant application forms.

To be eligible:

  • You must be a natural person (i.e. not a company or trust), 18 years of age or older, and an Australian citizen.
  • Have an individual taxable income of less than $125,000 or less than $200,000 for a couple (based on 2018-2019 financial year or later years)
  • The deadline for submitting applications has been extended to 14 April 2021 for all eligible contracts signed between 4 June 2020 and 31 March 2021.
  • Construction must commence within six months of the contract being signed to receive the grant.
  • The property value of a new build cannot exceed $750,000 (exceptions – for contracts signed 1/1/2021 – 31/3/2021, $950,000 in NSW and $850,000 in Victoria)
  • Property value for substantial renovation cannot exceed $1.5 million pre-renovation.
  • A “substantial” renovation is a contract between $150,000 – $750,000.

Home Construction (Building Bonus) Grant

This grant was introduced by the WA Government for building a new home on vacant land or entering into an off-the-plan contract to purchase a new home. Contracts have to have been entered into between 4 June and 31 December 2020, and provided you’ve done this you can still apply for the $20,000 grant.

The main requirement with the Building Bonus Grant is that construction must be commenced within 12 months from the date of the contract.

Application forms are available for the HomeBuilder and the Building Bonus Grant online via the WA Office of State Revenue.

First Home Owners Grant

As the name suggests, this is a one off payment to assist first home buyers in the purchase of a property which will be their principal place of residence. The grant available is $10,000, however is only available once per transaction. For example, a couple who are both purchasing their first home can only claim a total of $10,000.

Eligibility requirements include factors such as not previously owning residential property, occupying the property for a minimum amount of time depending on circumstances, the value of the home depending on location, and residency.

Application form for the First Home Owners Grant can be found here.

If you’re unsure, speak to an accountant at FAJ to make sure you meet all of the requirements and integrity measures to be eligible to take advantage of these grants.

For advice and assistance with your new or existing home loan contact Kristian from our FAJ Home Loans division. 

 

Other related blogs:

First home super saver scheme – now legislated

Author: Jake Solomon Email: jake@faj.com.au          

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Company carry back tax losses – what are the rules?

On the 6 October 2020 as part of the 2020/2021 Federal Budget the government announced an array of initiatives to support business and encourage new investment to help counter the impacts of the COVID pandemic. One of these was the introduction of legislation to allow a company to offset current year losses against prior year profits known as the loss carry back tax offset.

Prior to this initiative if a company incurred a loss it would have to wait until a future financial year where it made a profit to offset those losses. 

Under the changes, commencing from the lodgement of the 2021 financial year tax return, a company will be able to elect to offset its losses against prior year profits and receive a refund of the tax it has previously on those profits. This means a company won’t have to wait until a future year to see the benefit of those losses.

How does it work?

As part of completing the tax return you can elect to choose whether to apply any current year losses against prior year incomes.  Your accountant will guide you through which option will result in the best outcome for you.

Who’s eligible?

It’s important to note that this is only eligible for companies with turnovers of less than $5 billion. If you are trading as a sole trader, partnership or trust then these measures will not apply to you.

You will also need to have paid tax in a relevant prior financial year and the loss can only offset an equal amount of profit in a prior year.

When does this commence?

The first financial year where you will have the choice to carry back losses is the 2020-2021 financial year and can extend back to profits generated in the 2018/2019 and 2019/2020 financial years.

Want to access this offset?

If you expect to have tax losses in the 2021 financial year you will need to wait until after 30 June 2021 before we can submit the company tax return. Contact the Francis A Jones team for more information.

Related blogs:

What company debts can directors be personally liable for?

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

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Wages during lockdown

Well it was inevitable I guess. After 10 months without community transmission, Perth, Peel and the South West were forced into an abrupt lockdown last week after a security guard tested positive for the highly infectious UK variant of COVID.

The announcement by Mark McGowan sent shoppers into a foolish frenzy and forced business owners into a strenuous Sunday session to ready the team to work from home, or worse, close the doors and stand staff down.

When we went into voluntary lockdown in March last year, there was uncertainty around whether those stood down would get paid. But the Government soon announced the JobKeeper scheme which removed the issue for most.

This time around most businesses are no longer eligible for JobKeeper. So what happens now? Do you pay workers wages during lockdown or not?

Where staff can work from home, the rules are pretty clear. You should pay your team for the work they do, similar to if they were working at your premises. They are also entitled to normal entitlements like annual leave and sick leave. You must be careful to still comply with all OHS requirements, and may need to provide guidance on what constitutes a safe home office environment.

Where staff are stood down as a result of a Government imposed lockdown, and there is no possibility of working from home, you are generally not required to pay workers under Fair Work laws. But you might need to consider whether employment contracts or specific awards override this in your industry. You will also need to pay enough wages during lockdown to meet any JobKeeper obligations. You can of course choose to pay your team while they are stood down.

Employees can choose to use any accrued leave they have during the lockdown period, but unfortunately casual staff and contractors won’t have this option. You can’t refuse a request for leave without a good reason, and you can’t force staff to take annual leave.

A recent Court decision ruled that workers who are stood down in accordance with the Fair Work Act are not entitled to paid sick, carer’s or compassionate leave during that time. Fair Work are currently adopting this view, although an application has been made to appeal the decision.

Under certain awards (listed on the Fair Work website), all workers, including casuals can take up to two weeks of unpaid pandemic leave, without any accrual requirements. This leave can be used when there is a Government enforced lockdown, or when employees are directed to self-isolate or quarantine.

Here’s hoping the restrictions are lifted or at least lightened either by the time you read this blog or soon after, and that employers and their workers don’t have to re-visit this issue in the future.

Related blog:

JobMaker Hiring Credit – is my business eligible?

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

 

 

 

 

 

 

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Jobmaker Hiring Credit – is my business eligible?

The Jobmaker Hiring Credit scheme was announced as part of the 2021 Budget as an incentive for businesses to create new jobs and have the cost subsidised. Eligible employers can receive $200 per week for each new employee aged 16 to 29 years, or $100 per week for new employees aged 30 to 35 years, hired between 7 October 2020 and 6 October 2021, for up to 12 months.

Businesses are unable to receive the JobMaker Credits if they receive a JobKeeper payment for a fortnight that begins during the JobMaker period. They also cannot simultaneously receive JobMaker and an apprenticeship or traineeship subsidy. To be eligible employers must have an ABN, be up to date with their tax and GST lodgements, report through Single Touch Payroll, and be registered for Pay As You Go Withholding.

To receive the JobMaker credits there must be proof that employers are actually creating new employment positions. They need to show an increase in the total head count of employees as compared to the baseline head count, which is the total number of staff on 30 September 2020. Employers must also show an increase in payroll expenses as compared to the baseline payroll expenses incurred in the 3 month period ending 6 October 2020.

The new employee must have received government support such as JobSeeker or Youth Allowance for at least 2 fortnights out of the previous 6 fortnights before they were hired. They must be a genuine employee (not labour hire or a contractor), and cannot be an excluded employee, including a close associate, relative, a partner in a partnership, or shareholder in the company. They must also work at least 20 hours per week in the new job. Employers will need employees to complete a JobMaker employee notice to confirm they are eligible.

The JobMaker payment is paid to employers every 3 months in arrears. Businesses only need to register for the JobMaker scheme once. Registration must be completed before the end of the first claim period that the business is claiming – for the first JobMaker period (7 October 2020 to 6 January 2021), registration opened 6 December 2020, and employers can claim between 1 February and 30 April 2021. Employers don’t need to be registered before hiring new employees.

Businesses complete their registration and claim through myGov or the Business portal. Unlike the JobKeeper scheme, businesses are not required to pass the payment on to employees. The credits are assessable income amounts, and are not subject to GST.

Under the anti-avoidance rules the ATO will disqualify businesses that make artificial arrangements to inflate their head count or payroll by terminating current staff, or reducing the hours of an existing employee. Disqualified employers will lose entitlement to JobMaker Credits in the current and all future periods.

A complete ATO guide to the JobMaker process can be found here.

Author: Danielle Pomersbach
Email: danielle@faj.com.au        

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What company debts can directors be personally liable for?

It’s generally accepted that a company provides a level of asset protection, because a company is a separate legal entity. From the time a company is first registered with ASIC up until it’s final deregistration date, it is viewed as having separate legal status, property, rights and liabilities.

This gives directors some protection and makes a company a good structure for running a business , but it doesn’t fully absolve directors from being responsible for a company’s liabilities and debts. Directors can be found to be personally responsible for debts and liabilities in certain instances, and these obligations continue even after the company is deregistered.

The Australian Investment and Securities Commission (ASIC) is in charge of assessing the liability of directors in accordance with the Corporations Act 2001.  Examples of instances where directors may be found to be personally liable for company debts include;

Insolvent Trading

Directors have a duty to ensure that companies do not trade while insolvent. If this duty is breached directors may face civil and criminal provisions or become liable for company debts. A company is classified as insolvent if it is unable to pay its debts as and when they fall due.

To determine insolvency, both the cash flow and financial position of the company need to be assessed. If the company is deemed to be trading while insolvent, potential director defences include;

  • The director had reasonable grounds to expect solvency at the time the debt was incurred
  • The director had reasonable grounds to believe a competent and reliable person provided adequate information that identified the company as being solvent
  • The director did not participant in management due to illness or good reason at the time the debt was incurred
  • The director took all reasonable steps to prevent the incurring of the debt

Company Losses

If directors breach their duties and this causes the company to suffer a loss they can be found personally liable.

Potential consequences of breaching duties may find directors as having acted illegally and not in accordance with the Corporations Act, they may face civil and criminal provisions or be made to compensate the company for the losses incurred.

Guarantee and Security

Directors may provide personal guarantees or collateral to secure company liabilities (e.g. to finance a bank loan). If a company defaults and is unable to fulfil their liabilities, directors may lose collateral assets (e.g. their home) or be made to repay company liabilities personally.

Company Tax Debt

Directors have a responsibility to ensure companies meet their PAYG withholding and Super Guarantee Charge obligations. A consequence of non-compliance may find directors personally liable for a penalty equal to the company obligations.

Phoenix Activity

Directors can’t establish a new company to continue the activity of an existing company that has been placed into administration or liquidation to avoid paying outstanding entitlements. As a result directors may face civil and criminal punishment as well as imprisonment.

Trustee

Where a company is acting as a trustee of a trust, directors may be liable for a company’s breach in trust terms, acting outside the scope of its powers and where the terms of the trust limit the company from being protected against the liabilities.

Related Blogs

Discretionary Trust v Unit Trust
How to provide tax incentives for early stage investors?

Author: Elena Rear
Email: elena.rear@faj.com.au

 

 

 

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