Posts Categorized: Tax

Australian now living overseas – beware!

Australians now living overseas – beware! Legislation has been put before Parliament that will mean that an Australian living overseas who sells their former Australian family home will pay tax on the entire gain!

This will equate to tax in the hundreds of thousands of dollars!

Even though some of the backlog of legislation before the Senate was passed last week, the bill covering this has yet to be passed. I believe Parliament ceases sitting this week.  One could expect that political games will continue and it may be some time before this is passed (if it is indeed it is ever passed).

Separate tax laws apply to non-residents. Non residency is not determined by your passport or visa therein.  It is determined by tax law.  Generally speaking, someone living outside Australia for more than two years is presumed to have become a non-resident of Australia for income tax purposes.  Many other factors are taken into account which are beyond the scope of this blog.

This became more important following the 2012 Federal Budget when non-residents ceased to be entitled to claim the 50% capital gains tax discount.

The proposed law to take effect from July 2019 will fully tax the capital gain on a former family home located in Australia.  It will not matter how long the property was used as a home (remembering that one’s home is exempt from capital gains tax).  That seems most unfair as per the following example.

Bob & Sally bought a family home in 2005 for $500,000. They live in it for 12 years until moving to take up a 2 year position in London.  They enjoy it so much they decide to stay and buy a home in London.  To do so, they have to sell their former Melbourne home.  They sell it for $1,200,000 in 2020.  Under existing law, they would pay no tax as their home was initially their principal residence and the gain thereafter is also disregarded under a six-year absence rule.  Under the proposed new law, they would pay tax on the full gain of $700,000.  Furthermore, there is no tax free threshold for non-residents so they would pay tax from the first dollar at 32.5% and thereafter at progressively higher marginal tax rates.  We are talking tax in the hundreds of thousands of dollars.

In order not to pay tax, Bob and Sally would have to either:-

  • Sell it before July 2019.
  • Sell it upon their return to Australia (which may not be possible if they need to release equity to finance the new London home).

The legislation is yet to be passed by the Senate. It is not law.  In my view this is not acceptable particularly with July not being that far away.  All we can continue to do is monitor the situation and continue to raise it with clients as we meet with them.

In the meantime, we welcome any question you have.

We also encourage of you to think of any family, neighbour or friend who may be affected by this.

And don’t start me on the other tax changes stuck in Parliament!

 

Who will get your super?

Who will get your super?  Unfortunately, that is a question that many fail to address.

Having a will does not resolve this issue. A will dictates what happens to your personal assets.  As super is held in trust, your will cannot dictate where your super will go.

In order to set out to whom you would like your super to go, you need to make what is called a death benefit nomination. There are three kinds of death benefit nominations.  Each type has its merits and disadvantages.  The best one for you depends on your position and what you would like to happen.

What is best for you is often complex, particularly when there are self managed super funds and trusts (where the issue of on-going control is important).  Furthermore the tax considerations can be a major factor in determining the best way to leave what assets to what people.  This is all best discussed with a financial planner and skilled estate planning lawyer.  Please ask us for a referral.

Travel expenses – how to make the best claim

Travel expenses area tax auditor’s delight.  So what do you need to do to  claim everything you are entitled to claim?  The basics are:-

  • One must keep written or scanned evidence of all expenses when away from home for more than one night.
  • If one is travelling overseas or away for more than six nights within Australia, then a travel diary must be keep. Note the word must; it is not an optional requirement.  No diary, no claim.
  • Travel diaries can be bought at most newsagents. The simplest things to say is fill in each column to each row, but it is worth noting that one must record:-  – the nature of the activity.  – the day and time that the business activity commenced.  – how long the business activity lasted  – the name of the place where you engaged in the business activity.
  • Collect as many business cards and brochures as you can.  Photos are also great proof of what you did.

What if the trip is partly private and how might costs be split?

These are my views as the ATO provides surprising little clarity on this matter:-

  • If one goes for a conference to say Europe, then such a long haul means that it is unreasonable to expect one to fly in the day before and then spend say four days sitting in a darkened room.  Arriving say two days early does not in my view change the purpose of the trip.  Consequently, the cost of the whole flight remains fully deductible.
  • In my view, if one stays on for a day and/or it coincides with a weekend, the trip remains fully deductible.
  • The costs incurred on the work/conference days are deductible such as accommodation and food (but not excessive alcohol).
  • Sightseeing trips are not deductible.
  • What if one attends a week long conference but enjoys a week’s holiday beforehand or afterwards? Clearly the holiday is not deductible. However, it also raises a question as to whether the whole air fare can be claimed.  Unless there is some compelling counter argument, the air fare would need to be apportioned on a proportional days basis.
  • What if one’s partner comes along to the conference or business trip. One method is to only claim half of the accommodation costs.  Another method which I subscribe to is to find out the single rate and claim that – as that is what would have been incurred but not for the partner.  In some cases, it is the same rate.  Make sure you keep the evidence of the alternative room rate.

A common problem is obtaining receipts in some countries.

Thankfully, the ATO provides relief to this problem.  The ATO allows employers to pay their employees (which can includes the directors of a company) a daily travel allowance.  The ATO annually sets out daily rates that employers can pay employees to cover their daily travel costs of food, travel and other incidental expenses.  There are rates for Australia (which include accommodation) and overseas (which do not include accommodation costs as they must be fully substantiated).  Please ask us if you would like a copy of the current year rates.  There are differing rates for different areas with higher rates applying to higher costs centres and levels of salary.  Moreover, an employee is exempt from substantiation if they do not claim more than the allowance.

As it is an allowance, it must be treated as such in your payroll system, be reported within W1 on the next BAS and shown as an allowance on the end of year PAYG Payment Summary.  Please ask us if you would like help in setting this up correctly.

For further information on reasonable travel allowances, please search on our past blogs.

Please remember that as it is an allowance, this method can’t be used by those running a business in their own name or by partners in a partnership.

How do I get a Tax File Number?

You can apply for a Tax File Number by:-

  • Completing an online form and then booking an appointment at Australia Post. The appointment must be held within 30 days of completing the form. You must take the completed form and proof of identity documents with you to that meeting.
  • Department of Human Services customers can apply in person.
  • You can also order an application form and mail it to the ATO.

Our clients have tended to prefer the Australia Post option. A Tax File Number (TFN) should issue within 28 days.  You can access the Australia Post TFN application form here – https://identityservice.auspost.com.au/ato/landing

You can apply at any age for a TFN.

Common reasons for young people to apply are:-

  • Required for part time work.
  • To be able to register for a university course (and the HELP system).
  • Notifying bank of your own TFN rather than your parents’. Banks will withhold tax at 47% where interest is more than $120 and a child is over 16. The limit is $420 where a child is under 16.

In reality, it’s never too early to apply for a TFN.

A TFN is a most sensitive personal identifier.  Extreme care should be taken to protect it.  If you believe your TFN has been stolen, you should report the ATO’s Client Identity Support Centre on 1800 467 033 (open between 8.00am and 6.00pm, Monday to Friday).

You may also wish to watch the ATO’s YouTube video on applying for a Tax File Number.

What GST to charge on food and drinks?

We often get asked by our food and hospitality clients what GST to charge on food and drinks.

Sounds easy but its frequently not.

Thankfully the ATO have created a search tool which you can find at:-

ATO GTS food and drink search tool

We help a number of clients within food and hospitality and would welcome the opportunity to uncover the ways in which we can help you.  We can also show you our real time reporting food and hospitality dashboard (which is full on financial and non-financial KPI’s).

 

Companies beware – Division 7A changes

Division 7A is the area of tax law that requires shareholders or their associates (which includes family members and trusts) to repay loans to companies. Current laws been in place for 21 years but remain incapable of being fully understood by a reasonable person.

We therefore welcomed the announcement within the 2016 Federal Budget that the government would simplify Division 7A with effect from July 2018.

July 2018 has obviously come and gone.

However, Treasury has finally released a consultation paper.

Treasury alleges that it is based on the recommendations by the Board of Taxation.  It is anything but.

In fact it’s downright scary!

Announcements from the 2016 Federal budget which have found their way into the Treasury consultation paper include:-

  • All loans to be placed on 10 year terms.
  • Removal of the need for a formal agreement.

Those aside, other changes are nasty to say the least and include:-

  • Repayments in early years will be higher annual instalments to be equal.
  • The interest rate will be calculated off a different base and will increase by some 3%. In other words, it costs individuals more and the company pays more tax.
  • Repayments during the year will be disregarded so interest will be based off the opening balance. How unfair and unrealistic can you get?
  • Pre-1997 loans that are not treated under the current system will be required to adhere to Division 7A.
  • Division 7A currently only applies where there is an excess of assets over liabilities. This exemption will be removed.
  • Unpaid distributions by trusts to companies will be required to be on 10 year loan term from 2019.
  • Private use assets of the company will be required to be valued under a formula and subject to a market valuation every five years.
  • The period of review under which the ATO can go back and review the situation will be increased to 14 years. Other than fraud (where the ATO can go back as far as I like), no area of tax law has a period of review anywhere near as long as this.

The 2016 Federal Budget announcement was made under the guise that there would be a simplification of Division 7A. This is not a simplification.  This is dramatic shift under which the implications are far more onerous and costly.

Treasury’s consultation paper has caused a storm within the profession. It such a dramatic shift that it will be hard for the profession to retain current positions. There is also remarkably short period of time to do so as the amendments are to apply from July 2019.

We will keep our affected clients informed. Moreover, we will be actively be taking corrective stances before July 2019.  We do though welcome any query you may have now.

Exempt fringes benefits – mobiles & other electronic devices

A small business can provide an employee with a portable electronic device every year and do so free of Fringe Benefits Tax.  They qualify as exempt fringes benefits.

That could be a mobile, lap-top or tablet.

The limit is one per year but it must be used for work purposes.

It probably doesn’t mean as much to the owner of a small business as they are going to get a deduction under the $20,000 asset write-off concession (but which is due to expire come 30th June 2019).  But if you are an employee, it is a cost effective way of buying such items.

Want to know a few more tips – then call us.

Or better yet, meet with us as our initial meeting with business clients is free of cost or obligation.

Single touch payroll for small businesses

Single touch payroll for small businesses is not far away.

Come July 2019, every small business in the country will need to report their payroll to the ATO at the time of payment.  No longer will a business report total wages and tax on an activity statement and then confirm what was paid to whom by issuing PAYG Payment Summaries (group certificates) after year end.

Instead, at the time of payment, a business will need to report to the ATO:-

  • How much was paid to each employee, and
  • What the tax withheld was and what super is required to be paid.

This will allow the ATO to better chase up unpaid PAYG Withholding.  Moreover, by matching super contributions received as reported by super funds, the ATO will be better placed to chase the almost $3 billion of unpaid SG super.  And don’t think the ATO and the government aren’t serious about this.  They have already announced an intention to legislate 12 months jail terms for unpaid super (presumably of some significant amount).

Not that directors don’t want to not pay PAYG Withholding and SG super.  Since July 2012, PAYG Withholding and SG super unreported and unpaid after 3 months becomes a personal tax liability of a director.

This is not something to be left to July or that last minute.

Please pay attention to our progressive information and training.

The ATO has announced that small businesses don’t need to have a payroll program (and presumably they will release some on line version). But a payroll program will make it easier.

As stated above, we will educate and assist our clients to comply. If you have another accountant, then we welcome the chance to explain to you how we can help you in this area and other ways we can assist you to improve your business and to make you more successful and secure.

You may also wish to watch the following introductory ATO video.

https://www.youtube.com/watch?v=aryD4-MfDjA

Cash flow – state actual due date on invoice

Instead of stating terms such as 14 days on an invoice, we suggest stating the actual due date – such as Monday Nov 5.

We have found that other clients that have moved away from number of days to the actual due date have experienced earlier receipts from customers.

Savings from a company tax rate cut?

So Scott Morrison has said that they wish to accelerate the company tax rate cuts for small business.  So what are the savings from a  company tax rate?

Not much if you intend to pay out profits as dividends.

In fact you might be worse off.

For more, read our previous blog at:-

What do the company tax cuts mean to you?