Month: March 2022

COVID Deductions Rely On Work-Related Purposes (So Here’s What You Might Be Able To Claim)

Posted on by Adam_Admin

People across different industries may have different items for work that they can claim a deduction on their tax returns for, but this season may see a few common occurrences across individual tax returns for 2022.

On your individual tax return this year, you may notice a few expenses pertaining to COVID-19-related purchases, such as masks, hand sanitisers and RATs tests that you may be able to claim (depending on your circumstances). These deductions may have specific conditions and requirements that must be met, and failure to comply may result in the Australian Taxation Office disallowing these claims.

Masks and hand sanitiser are claimable deductions for those who have required them to work in their industry (e.g. retail, hospitality, education). This is because they can be claimed as PPE (Personal Protective Equipment), but they must be directly connected to how you earn your income (for example, many State governments mandated at various points last year that hospitality workers were required to wear masks while working). If your place of employment did not provide this PPE to you, and you had to purchase it yourself, it may be claimable.

Rapid Antigen Tests (RATs) however, must be purchased for a work-related purpose. There have been plans to specifically allow deductions for Covid-19 tests such as RATs by the Government to be claimed on individual tax returns.

This legislation is scheduled to be introduced on 1st July to specifically address this, but a COVID-19 RAT test can still be claimable if it is for a work-related purpose. This is the critical point to understand. It is a claimable deduction in this instance because it has been purchased for a work-related reason, or to be able to attend your place of work.

When claiming a deduction, it is important that you keep accurate records (such as receipts) to provide evidence of your purchase, and that these purchases weren’t reimbursed by your employer. If they were reimbursed, you will not be able to claim it back.

If you were working from home during 2021, you may be able to claim back some of the expenses related to this. One of the ways that you may be able to do so is through the ‘shortcut method’. This method allows you to claim 80 cents per hour for each hour worked from home (from 01 March 2020 to 30 June 2022). Importantly though, this includes everything – you don’t need to make other claims for work from home items such as phone, internet, stationery or furniture/equipment depreciation separately.

Depending on your circumstances, choosing the wrong method means you could cheat yourself out of big dollars on your tax return. Discuss your situation with your trusted tax agent so that you can understand what exactly is required from you in the lead up to tax return time.

Passing The Business To Family? Here Are Three Things You Probably Hadn’t Considered

Posted on by Adam_Admin

Succession planning for the family businesses has a number of factors that could impact the decision to pass the business onto the next generation. Namely,  you’ll be looking for someone in the family who is willing to assume the responsibility.

But if you intend to pass your business down the family tree there are also a number of taxation, financial and managerial considerations that need to be taken into account for a successful succession.

Taxation Implications

When transferring your family business and placing it in the name of another family member you may trigger a myriad of taxable consequences, including Capital Gains Tax (CGT), wine equalisation tax, fuel tax credits and excise duty. You need to consider, when preparing the business for succession include:

  •     Consulting the ATO to check if you are eligible for tax concessions
  •     Document all business restructuring operations and the tax impact in the succession plan

Consider A Family Trust

It is often suggested before a younger family member gains ownership of the business they should first assume managing responsibilities to prove themselves. If you want to relinquish control gradually rather than permanently, re-structuring the business as a family trust is an option.

Although this may be complicated and incur costs, as a trustee you will be able to have control of the assets from a distance and be able to step in should the need arise in the early phases of new leadership. Family trusts also carry increased tax benefits and concessions that can be taken advantage of.

This is a great solution for those looking to go into semi-retirement or looking to step back from the business but still want some involvement with the process.

Create A Family Constitution

To make the hand-off occur as smoothly as possible a family constitution should be drawn up collaboratively by all, directly and indirectly, involved in the business. The following should be included:

  •     A detailed business plan, stipulating goals, outcomes
  •     Hierarchy of the business, both present and future
  •     Will of the business
  •     Code of conduct for interactions between family members in business

Develop A Succession Plan To Successfully Succeed

A succession plan is designed to assist you in transferring your business to a successor. To do so, it should include the following to further guide the process.

  • Choose A Successor

Identify who you would like to take over your business. If you wish to keep it in the family, you need to be certain that the person who will be taking over is skilled and prepared for the responsibilities to come. Make sure that you consider what is the best path for the business.

  • Value Your Business

Understand how much your business is currently worth by getting your business valued. By doing so consistently, you can mark out how much your business is worth during events, the general day-to-day and more. This valuation may change substantially before you plan to leave, but having a valuation may assist you with planning for your succession.   

  • Keep The Plan Current

Review your plan regularly, as your circumstances and the business’s circumstances may change over time. Having an up-to-date succession plan will ensure you’re always ready in the event that you need to pass the business on earlier than expected. 

  • Make The Final Handover

If the final preparations have been properly made, and you’re ready to go, you should simply be able to hand over the business and step aside. A clear and current succession plan should facilitate a smoother transition with far less chance of disruption to the business’s everyday operations.

Why Keeping Money In Your Superannuation Needs To Consider Death Benefit Taxes

Posted on by Adam_Admin

Most people will want to keep as much money in their superannuation account for as long as possible. One of the primary reasons behind this is that the longer the superannuation has a chance to stay within the account, the more returns may be seen (depending on how the investment assets are performing).

Often, people will ask if they actually have to take their money out. The simple answer is no.

You never have to take your own super out if you don’t want to. There are plenty of rules regarding keeping money in super (including the conditions and requirements to withdrawing, meeting preservation ages, etc). There are very few however that force you to take it out, and very rarely will you be forced to withdraw your superannuation if you do not want to.

The only time your super must be paid out is following your death (which, technically, means that you won’t receive that money anyway, it will be your beneficiary/ies who will).

The question though is whether or not you should leave your superannuation in there until you die. It comes down to who is receiving the money from your super.

If the money is being paid out to your spouse, it will be tax-free and there will be no issue with accessing it. You can also keep as much of your superannuation in there for as long as is necessary.

When you are a married couple, you can leave it to each other. However the remaining living spouse will often end up leaving their super to their adult children, and therein lies the catch.

When your super is paid to a child who is over 25 (without a disability), the adult child has to pay 17% tax on any taxable component of their parent’s super. In this situation, taking professional advice to compare the tax consequences of taking your super early (where you pay the tax on the earnings) versus the tax position of leaving it in super and your kids paying 17% on the taxable component instead, may be needed to work out what might be best for your situation.

One of the primary concerns is that those finding themselves in this position, where they have for example $600,000 in super and in their mid-eighties are not paying tax and not regularly seeking advice are the ones whose children end up paying the tax.

It may be that the next generation needs to be involved with their elderly parents’ financial positions to ensure that they are not going to be stung with Australia’s death taxes on superannuation payments.

Remember, this tax is only payable on the taxable component of the superannuation – there are strategies that can be put in place during your sixties that can reduce the taxable component of your super (without taking it out and remaining in your name).

Everyone in their sixties should be taking advice from professionals so that the impact of death benefit taxes are reduced for their adult children when it is mandatory for their parents’ superannuation to be paid out to them.

Common GST Mistakes That You Might Be Making In Your IAS

Posted on by Adam_Admin

GST is an area that commonly has mistakes made in it – mistakes that can be costly and require additional measures to correct it if they aren’t caught in time.

Many small business owners continue to make errors when claiming GST credits in their GST returns or Business Activity Statements.

A vast majority of these errors are easily avoidable and often relate to the over-claiming of GST credits. Here are the top ten common GST mistakes that can be made (and what you might be encountering yourself).

  • Residential rental property: Incorrectly claiming GST credits on expenses relating to residential rental properties where the entity is registered for GST.
  •  Bank fees: Generally, annual fees, monthly fees and loan establishment fees are input-taxed, and therefore, there is no GST to claim. However, GST is charged on credit card merchants’ fees and can be claimed.
  • Private expenses: GST is not claimable on private expenses such as personal loans, director fees and drawings etc.
  •  Interest: Interest paid on loan or chattel mortgage repayments or credit card payments does not incur GST, and cannot be claimed.
  • The total cost of a business insurance policy: Insurance policies usually include stamp duty (which is GST-free), however, the rest of the policy is subject to GST. A GST credit cannot be claimed on the stamp duty portion of the policy as no GST is paid.
  • Government fees: GST is not charged on government fees i.e. council rates, land tax, ASIC filing fees, motor vehicle registration and water rates, and therefore, GST credits cannot be claimed.
  • GST-free purchases: Incorrectly claiming GST credits on purchases without GST, such as basic food items, exports and certain health services is a common mistake. Remember not all suppliers are registered for GST, so check the tax invoice before claiming a credit.
  • Entertainment expenses: Claiming the entire GST credits on entertainment expenses where the business has elected to use the 50/50 split method for fringe benefits tax is incorrect. Only 50 per cent of the GST credits can be claimed.
  • Wages and superannuation payments: Both wages and super do not attract GST and cannot be claimed. Wages are not an expense to be included in G11; they are to be reported in W1 in your BAS. Superannuation is not included in BAS.
  • Sole traders and partnerships: When claiming expenses that are used for both private and business use, you must apportion the expenditure to exclude private usage.

If you find that a mistake was made on a previous activity statement, the ATO says you are able to:

  • correct the error on a later activity statement if the mistake fits the definition of a “GST error” and certain conditions are met;
  • lodge an amendment – the time limit for amending GST credits is 4 years starting from the day after the taxpayer was required to lodge the activity statement for the relevant period, or
  • contact the ATO for advice.

If you find this process is too time-consuming or too difficult to complete yourself, the best way to ensure that you remain compliant and avoid making these mistakes is to contact a registered BAS agent for assistance.