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Tax

Taxi travel exemption now includes travel in ride-sourcing vehicles

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The ATO confirmed that ride-sourcing is now considered ‘taxi travel’ for fringe benefits tax (FBT) purposes. This change is because of amendments to the Fringe Benefits Tax Assessment Act 1986, which are now law. Travel by Uber and other ride-sourcing services now qualifies for fringe benefits tax (FBT) exemptions on the same footing as traditional taxis.  

Employers are now eligible for the exemption for travel provided to their employees in a single trip to or from the employee’s workplace:  

  • on or after 1 April 2019  
  • in a licensed taxi or other vehicle involving the transport of passengers for a fare – other than a limousine – such as a ride-sourcing vehicle.  

Employees can also be eligible for the FBT taxi travel exemption on or after 1 April 2019 if it’s as the result of sickness of, or injury to, the employee, and whole or part of the journey is directly between:  

  • the employee’s place of work  
  • the employee’s place of residence  
  • any other place that it is necessary, or appropriate, for the employee to go as a result of the sickness or injury.  

“The change is designed to help minimize compliance costs for businesses providing transport for their employees.”, said ATO Deputy Commissioner John Ford. Any benefit from travel by an employee using a registered taxi or ride-sourcing provider (other than in a limousine) is now exempt from FBT subject to meeting certain criteria.  

For more information on the FBT taxi travel exemption, go to ato.gov.au/FBTtaxi.   

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Filed Under: Tax

Tax myths to avoid during this current Tax Time

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2020 has been difficult, but your tax return doesn’t need to be. “There is always a range of myths that need busting around Tax Time and the changed circumstances this year have seen some new additions to the list,” Assistant Commissioner Karen Foat says.   

Check out this list of 2020’s top tax myths to avoid!  

1, Bank details need to be updated  

According to the ATO, last year many people in their rush to lodge early forgot to update bank details and delayed their refund. While the ATO receives information from banks, this doesn’t extend to updating details for the bank account you nominate to have your refund deposited into.  

2, You can’t “double dip”  

The ATO is concerned that some taxpayers may “double dip” by claiming their working from home expenses using the all-inclusive shortcut method while claiming for specific items such as laptops or desks. If you are claiming under the shortcut method, you cannot claim a separate additional deduction for any expenses you incur as a result of working from home.  

3, You can’t claim home to work travel  

According to the ATO, if you are working from home as a result of COVID-19, but sometimes need to travel to your regular office, you cannot claim the cost of travel from home to work as these are still private expenses. Although you are working from home, your home is still a private residence – it is not a ‘place of business’. Generally, you can only claim the cost of traveling from home to work if you are required by your employer to transport bulky tools or equipment and there is not a safe place to store these at your workplace.  

4, You can’t claim $300 if you had no expenses  

Ms. Foat stated that the ATO often sees people claiming a deduction although they did not purchase anything, and this is often because they thought everyone is entitled to claim $300. While people don’t need receipts for claims of expenses up to $300, they must have spent the money and can show the ATO how they worked out their claim.  

5, Work-related expenses must be work-related!  

The ATO finds taxpayers trying to claim personal expenses under the guise of work-related expenses, but the truth is, you can only claim for expenses that are directly related to earning your income.  

For example, if you are working in jobs that require physical contact or close proximity to customers and you had to buy your hand sanitizer, gloves, or masks to use at work, you can claim these items. On the other hand, if you are not in jobs that aren’t close to the public or if you have purchased these items for their general use, you cannot claim these items.  

Furthermore, you cannot claim for the costs of setting your children up for homeschooling, as the ATO views these costs aa being private expenses.  

6, Lodging early not necessarily means an early refund  

For this year, the COVID-19 element is likely to mean third-party information from employers, banks, private health insurers (and this year JobKeeper for employees and JobSeeker amounts) may not be fully available until later in July or mid-August. For most people, this information is ready by the end of July.   

Therefore, you should lodge when the ATO has automatically included this information for you. Lodging earlier can leave out some important information, which can slow your return down as a result. 

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Withdrawing super early and recontributing your super can result in consequences

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copper-colored coins on in person's hands

Thanks to the ATO’s COVID-19 early release of super, those who have been financially affected maybe able to access some of their super early. However, since there is no restriction on how this money can be spent, eligible individuals can use this money for anything they choose or save it for future expenses. They can also recontribute some amounts back into their superannuation if they meet the contributions rules (both eligibility and acceptance) and, in the case of SMSFs, their trust deed allows it.  

This recontribution strategy involves withdrawing a lump sum and recontributing these funds into super as a non-concessional or concessional contribution, in which the individual can claim a tax deduction for the contributed amount. Although recontribution strategies are acceptable, it is important to understand that the new early release scheme is aimed to help those who are affected by COVID-19, not to help individuals obtain tax benefits. The ATO is now concerned that these actions have become prevalent and has issued a warning: “COVID-19 Early release of super – integrity and compliance”.  

The ATO highlighted the following aspects of the tax law related to superannuation that can happen if individuals use the mentioned recontribution strategy: 

  • Excess contributions tax; individuals may need to pay additional tax if they exceed the concessional or non-concessional contributions cap 
  • Contributions tax; concessional contributions made to a super fund are taxed at the 15% rate by the fund 
  • affecting eligibility for a super co-contribution 
  • Division 293 tax; individuals may need to pay additional tax due to income and personal super contributions. 

Furthermore, if individuals enter the COVID-19 early super scheme mainly for the purpose of obtaining a tax benefit, the application of Part IVA can happen. The ATO says schemes under COVID-19 early release of super that attract its attention include: 

  • artificially arranging affairs to meet the eligibility criteria 
  • withdrawing and recontributing super to claim a tax deduction 
  • contributing an amount of super to claim a deduction and then withdrawing that amount. 

Where Part IVA applies to a scheme, the tax benefit obtained may be cancelled. Administrative penalties and interest charges can also apply. 

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Filed Under: Tax

More Australians are reporting tax cheats

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dob in tax cheat

More and more individuals are willing to report phoenix, tax evasion or black economy activity. The Australian Taxation Office revealed a record-breaking 15,000 tip-offs to its Tax Integrity Centre in the first quarter of this financial year – that equates to about 230 tip-offs per day.  

According to Peter Holt, ATO assistant commissioner, the main categories of tip-offs received were related to not declaring income, demanding cash from customers and paying workers “cash in hand”, not reporting sales and having a lifestyle that does not match income.  

The community is aware of black economy activities and are willing to make a tip-off. People are getting irritated at people cheating the system to gain an unfair advantage, and they genuinely want to stop cheats. The black economy means the community is mi

ssing out on important public services such as schools, healthcare, and other infrastructure. Honest businesses are also disadvantaged, and the employees getting paid cash in hand are probably not getting full entitlements.  

What happens after a tip-off?

  • The ATO crosschecks the information and assesses what action needs to be taken.  
  • Privacy laws prevent the ATO from informing you of the outcome or progress of your complaint.  
  • Investigation can run from a few days to years.  

How do I submit a tip-off?

You can submit a tip-off by phoning the ATO’s black economy hotline on 1800 060 062 or completing a form on the ATO website or via the ATO app (“Contact Us” section). Make sure to include as much detail as possible. For more information, visit the ATO website. 

Filed Under: Tax

How Much Documentation Do You Really Need For a Tax Return?

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Tax time article headerTax time is one of the few times of the year where keeping an absurd amount of paper in your possession is socially acceptable. But while most of us can confide in our receipts to keep us safe navigating our tax return, receipts aren’t always enough – especially if you get audited by the ATO. 

As one such Australian told the ABC some weeks ago, claims for $120,000 of self-education over three years lead to a full-scale audit.  When asked to supply bank statements as well as receipts for their education, they were taken aback, but this is not an alien concept for audits from the ATO. Unfortunately for this person, they made mistakes in previous returns leading to a $24,000 debt – but this doesn’t have to be the case for you.  

Jumping through various hoops to only get stung with a big debt is a pretty jarring experience and you are destined to learn some lessons going through that type of hardship. The number one lesson they learned?  

Keep records and use a tax agent 

The ability for tax agents to easily change previous years returns and to accommodate sudden changes in your financials makes keeping yourself safe during an audit much easier. Furthermore, keeping records needs to stop being an exclusively analog process. Scanning your receipts into software such as XERO or Dropbox not only frees up space in your pocket but makes it far easier to organise and recall receipts.  

At the end of the day, if you have correctly worked out your claims so you aren’t claiming more than you should be and have your documentation in order, you have nothing to worry about. If you aren’t confident that you can correctly work out your deductions, take the stress away and contact a tax agent. We can help you get the most out of your tax return, give us a call today on 3367 0852 or email us through mail@raaccountants.com.au 

Non-Compliant Payments: How Are They Changing in 2019?

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When you are paying your employees, there are certain parties you need to withhold amounts from and instead send this to the ATO. This is to ensure these parties don’t have to pay larger amounts of unnecessary tax at the end of the year. We’ve put together a handy guide to make sure you don’t get caught out heading into the end of the financial year.  

From July 1, 2019 you can only claim deductions for payments made to your workers where you have met the PAYG withholding obligations for that payment.  

If the PAYG withholding rules require you to withhold an amount from a payment you make to a worker, you must: 

  • Withhold the amount from the payment before you pay it 
  • Report the amount the ATO 

Any payments you make where you haven’t withheld or reported the PAYG tax are non-compliant payments. You won’t be able to claim a deduction if you don’t withhold any PAYG tax or report the PAYG tax.  

You can only claim a deduction for the following payments if you comply with the PAYG withholding rules: 

  • Salary, wages, commissions, bonuses or allowances to an employee  
  • Directors’ fees 
  • To a religious practitioner  
  • Under a labour hire arrangement 
  • For a supply of services where the contractor has not provided you with their ABN 

These are all well and good, but what if you are providing something which is not cash, goods and services for example. If this is the case, you will still have to report the PAYG tax in order for this to be classified as a compliant payment and allow you to claim a deduction.  

It’s important that you ensure you are complying with PAYG withholding and reporting obligations for a payment. If you don’t, you face losing your deduction for that payment or existing penalties that apply, which can be a hefty fine. 

If you do make a mistake, you don’t need to start hyperventilating, instead you should lodge a voluntary disclosure form and correct your mistake as soon as possible. However, if you should have withheld PAYG tax and didn’t, you do stand to lose your deduction for that payment.  

As always, you can get in contact with us if you have any worries about your PAYG activity.

 

How Will Tax in Australia Change After the Election?

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There is only a short time before the Federal Election on 18 May 2019, and there’s a lot of wild speculation.

We’re not trying to recommend who you should vote for, but instead we believe that it is vital that our clients understand how they will be affected by the result of the Election.

Here are some of the key ways you may be impacted:

  • The amount of personal income tax and Medicare levy you will pay
  • The amount of capital gain that will be subject to personal tax
  • Opportunity to continue to convert excess franking credits into cash tax refunds
  • Altering the tax treatment of trust distributions
  • Ability to offset prospectively investment losses against other income (i.e. negative gearing)
  • Ability to claim a full deduction for the cost of managing your tax affairs; and
  • Remove deductibility on personal superannuation contributions and lower the annual concessional contribution cap

A note of caution here, as there is little detail associated with some of the proposed changes. While we have listed below the main policy announcements, the detailed legislation might differ substantially, so we encourage you to be mindful of this!

This is what we know so far (at time of writing):

Labor’s Tax Policies

  1. A tax on those receiving distributions through Family or Discretionary Trusts at 30%. These are small business structures, and this will affect many business owners.

 

  1. Doing away with the cash refunds for excess franking credits through a SMSF.

 

  1. Increasing the personal tax rate in the top tax bracket by an additional 2%.

 

       4. Maintaining a company tax rate at the full 30 per cent (%) for companies with turnover exceeding $50 million.

 

  1. Higher personal tax rates at the top end and lower personal tax rates at the lower end (i.e. less than $125,000).

 

  1. Limit negative gearing on investment properties to newly built residential dwellings from a yet to be determined date after the election. Property investments made before this date will not be affected as they will be grandfathered. The ability to negatively gear other asset classes will also be restricted.

If the total of the interest and deductions related to investments exceed the investment income, the excess will not be able to be used for offset against other non-investment income such as salary and wages. This excess will need to be carried forward for offset against future investment income or capital gains.

It will apply on a prospective global basis to every taxpayer. In other words, it will apply to property and shares alike (and any other relevant asset classes) and it will apply by looking at a taxpayer and assessing their overall investment income as measured against their overall investment interest expenses;

 

  1. Providing landlords who build new residential dwellings an annual subsidy for 15 years of $8,500 a year if the home is let out at 20 per cent below market rates;

 

  1. Much higher capital gains tax when you sell an investment property or other taxable asset due to the halving of the Capital Gains Tax (CGT) discount to 25 per cent for individuals. All investments made prior to 1 January 2020 will be fully grandfathered, so the new rules won’t apply to them.

 

  1. A new deduction (the Australian Investment Guarantee) that will enable a 20 per cent deduction in respect of the purchase of any eligible asset worth more than $20,000.

 

  1. Capping of deductions for managing tax affairs to a maximum of $3,000. This cap will impact individuals, trusts and partnerships. A carve-out is to apply for individual small businesses with positive business income and annual turnover up to $2 million.

 

  1. Whistle-blower rewards for tax evasion; and higher penalties for tax exploitation promoters.

 

       12. Superannuation:

  1. Oppose catch up contributions on concessional contributions and tax deductibility on personal superannuation contributions;
  2. Lower annual non-concessional contribution cap to $75,000 and reduce high-income super contribution threshold to $200,000 so that more Div293 Tax will be paid by higher income earners;
  3. Increasing the superannuation guarantee to 12 per cent when fiscal circumstances allow;
  4. Phase out the $450 minimum monthly threshold to receive super guarantee contributions, as part of a broader women’s super-security package; and
  5. Higher penalties for employers not paying SG.

 

The Coalition’s Tax Policies

  1. Companies with a grouped turnover of less than $50 million have a reduced company tax rate of less than 30 per cent. Tax cuts already enacted as follows:
  • 5 per cent 2019-20 income year
  • 26 per cent for the 2020-21 income year
  • 25 per cent for the 2021-22 income year and for subsequent income years

The government will no longer proceed with implementing its plan to have a 25 per cent tax rate apply to all companies;

 

  1. The government has legislated changes to personal income tax thresholds, as announced in the 2018-19 federal budget. Personal tax changes legislated are to be rolled out in three tranches over the next seven years as detailed in the table above;

 

  1. No change to current arrangements regarding negative gearing of investment property;

 

  1. No change to the CGT discount, which currently sits at 50 per cent for individuals;

 

  1. No change to the current arrangements regarding trust distributions from discretionary trusts. Currently distributions are subject to tax in the hands of beneficiaries at marginal income tax rates, which could result in a lower effective tax rate for those distributions;

 

  1. No change to the current arrangements regarding imputation, in particular the full refund of excess imputation credits. This means that excess imputation credits can be converted into cash refunds;

 

  1. Superannuation – While not directly a tax policy, the government is proposing a three-year audit cycle for SMSFs that have a history of good record-keeping and compliance;

 

  1. The $30,000 immediate asset write-off is available to 30 June 2019. There is no certainty beyond this date; and

 

  1. Establish a Small Business Concierge Service within the Australian Small Business and Family Enterprise Ombudsman’s office to provide support and advice about the Administrative Appeals Tribunal process. It will also create a dedicated Small Business Taxation Division within the AAT which will include a supporting case manager, a standard application fee of $500 and fast-tracked decisions to be made within 28 days of a hearing.

 

It’s hard to imagine not being impacted in any way.

There are many other election issues that will influence a voter’s preferences and, at the end of the day, it is about making informed choices.

Please contact us anytime if you would like our advice (before and after the Election) about these proposed tax policies and how they may affect you. We’re here to help you!

What the Election Means for Tax

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The federal election is looming with a speculated May election, but all the major parties stand quite differently on tax. How are we meant to make sense of the policies amongst the politics? 

With the both major parties budget intentions now on the table, it’s time to unpack what these would mean for Australians. There are five major areas of tax that we can expect to be shaken up, particularly if there is a change of government. 

  • Personal tax cuts 
  • Franking credits 
  • Discretionary trusts
  • Negative gearing
  • Capital gains tax

Personal tax cuts 

For starters, the coalition have announced a three-stage process for tax cuts. This begun in 2018 with the increasing of the top threshold of the 32.5 per cent tax bracket from $87,000 to $90,000. Following this, the coalition plan to increase this bracket again from $90,000 to $120,000 at the start of financial year 2022/23. Finally, the coalition plans to increase this bracket yet again from $120,000 to $200,000 thus removing the 37 per cent bracket completely.  

Labor intend to roll back the latter two stages of this if elected, as well as looking to cap the amount individuals could deduct for the management of personal tax affairs. There is intended to be a carve-out for individual small businesses with positive business income and annual turnover up to $2 million.  

Franking credits 

Labor intend to do away with the current system of individuals earning below the $18,200 threshold receiving refund for all their imputation credits. Proposing a return to the system instated in the 80s during Bob Hawke’s stint as PM whereby imputation credits can be used to reduce tax, but shareholders will not receive cash refunds from the government.  Pensioners will be excluded from this system through a “pensioner guarantee.”  Scott Morrison and the coalition currently have no policy in place for removing franking credits.  

Discretionary trusts 

While the coalition has no plan to tax discretionary trusts, Labor intend to introduce a standard minimum 30 per cent tax rate for discretionary trust distributions to mature beneficiaries. Labor intend to reduce income splitting use through this plan, minimising tax. There are some carve-outs intended for non-discretionary trusts with this plan, such as deceased estates, etc. Farm or charitable trusts will also be exempt.  

Negative gearing 

While the coalition have not announced any intention to change the current policies for negative gearing, Labor intend to limit negative gearing to newly built housing from 2020. Investments previous to 2020 will not be affected, being grandfathered and still allowed to claim deductions.  

Capital gains tax

Labor hope to reduce the capital gains tax discount for assets held longer than 12 months from 50% down to 25%. The CGT discount is not intended to change for small business assets. The coalition’s focus for CSG changes are on eliminating foreign residents’ entitlements to claim the main residence exemption when they sell property in Australia. However, these have seemingly been put on hold.  

With budgets and the election just around the corner there are bound to be further changes proposed and will update you on those as they are announced. 

ATO Waving Penalties For Unpaid Superannuation Payments

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The ATO will be waiving penalties for the hundreds of businesses who have admitted failures to pay superannuation to their staff after a ‘botched’ amnesty.

An amnesty was rolled out in May of 2018, which offered employers who failed to pay super entitlements stretching back to the 1990s a “clean slate.” Unpaid super is estimated as being worth up to a whopping $6 billion a year in Australia, with the government hoping this initiative would encourage employers to pay their workers super entitlements. 

While the policy has been dumped, the amnesty for employers will still run for 12 months. Anyone failing to use this amnesty as a time to declare their past wrongdoings is warned they will face penalties in the future to the sum of half the money owed, on top of the unpaid super. 

Employers who have already made claims to the ATO are being treated as though they had voluntarily reported themselves under current rules. This means they must repay unpaid super as well as interest to the employee and an administration fee per employee of $20 per quarter. 

To be eligible for the superannuation amnesty, businesses will need to:

  • Not be subject to an audit of your Superannuation Guarantee (SG) for the relevant periods 
  • Voluntarily disclosed amounts of SG shortfall or late payments that have not been previously disclosed for any period from 1 July 1992 to 31 March 2018 
  • Made the voluntary within the proposed 12-month amnesty period (24 May 2018 to 23 May 2019) 

If you are unsure whether you are meeting your superannuation requirements effectively, give us a ring on 07 3367 0852 or email us at mail@raaccountants.com.au 

Would You Like Fringe Benefits Tax With Your Eggnog?

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The end of the year is fast approaching and its finally time we put our phones down, hung up our stockings and sat back with a glass of eggnog. Here at RA this will be accompanied by a wholesome team dinner for our Christmas party, but if you are considering having a Christmas shindig for your team you may be forgetting one thing – fringe benefits tax.  

Fringe benefits tax? 

Fringe benefits tax is a tax employers pay on certain benefits they provide to their employees – including employees’ family or other associates. FBT is separate to income tax and is calculated on the taxable value of the fringe benefits provided.  

When would fringe benefits tax apply? 

  • A Christmas party provided to current employees held on the premises on a working day may be an exempt benefit. 
  • The costs associated with a Christmas party (food and drink) are exempt from FBT if they are provided on a working day on your business premises and consumed by current employees. 
  • Gifts provided to employees at a Christmas party are exempt from FBT if they meet the minor benefits exemption rule and are worth less than $300. 

What do I keep in mind when I’m planning to make sure I don’t accrue any FBT? 

  • How much is the event/gift going to cost? 
  • When and where is the event going to be held? 
  • Who is going to be invited? Are exclusively current employees going to attend or a wider base of people? 
  • What type of gifts are going to be given if I’m giving gifts?  
  • Who is going to be receiving the gifts? 

What about Christmas parties off-site? 

Costs associated with Christmas parties held off your business premises will give rise to a taxable fringe benefit for employees and their associates unless the benefits are exempt minor benefits. For example, if exclusively current employees and their associates attend for $180 per head, there are no FBT implications as the minor benefits exemption applies. However, if current employees, their associates and clients attend at a cost of $365 each – a taxable fringe benefit will arise for employees and associates. For clients, there is no FBT payable and the cost of providing the entertainment is not income tax deductible.  

If you need further advice on your tax needs, give us a call or book a consultation on 07 3367 0852