SJM Accountants Pty Ltd


Budget 2016-17
May 10, 2016, 10:53 am
Filed under: Uncategorized

Below is some of the key budget changes affecting individuals and small business.

Personal tax cuts for middle income earners
Date of effect 1 July 2016

The 32.5% personal income tax threshold will increase from $80,000 to $87,000 from 1 July 2016. The new tax rates from 1 July 2016 would be as follows:

individual tax rates

These tax rates exclude the Medicare Levy and the 2% debt tax on high-income earners over $180,000 which will come to an end on 30 June 2017.

Reducing the company tax rate to 25%
Date of effect Progressively from 2016-17

The company tax rate will be reduced to 25% over 10 years. The reduction will initially target companies with a turnover less than $10 million, then gradually increase access:

business tax cuts

Franking credits will still be calculated with reference to the amount of tax paid by the company paying the dividends.

Small business entity threshold jumps to $10m
Date of effect 1 July 2016

In a significant win for business, the small business entity turnover threshold will increase from $2 million to $10 million from 1 July 2016. The reform will give a greater number of businesses access to a range of tax concessions such:

• The lower small business corporate tax rate (27.5%);
• Simplified depreciation rules including an immediate write-off for assets costing less than $20,000 that are acquired by 30 June 2017 and depreciation pooling provisions;
• Simplified trading stock rules;
• A different method of calculating PAYG instalments;
• The option of accounting for GST on a cash basis;
• FBT exemptions (this would start from 1 April 2017); and
• A trial system of using a simpler business activity statement.

The current $2 million turnover threshold will be retained for access to the small business CGT concessions and access to the unincorporated small business tax discount will be limited to entities with turnover less than $5 million.

Lifetime cap on non-concessional contributions
Date of effect 7.30 pm (AEST) on 3 May 2016
Applies to all non-concessional contributions made on or after 1 July 2007

A lifetime $500,000 non-concessional contributions cap will be introduced from Budget night.

The current system of annual non-concessional contributions of up to $180,000 per year (or $540,000 every three years for individuals aged under 65), will be replaced with this new lifetime cap.

The lifetime cap will take into account all non-concessional contributions made on or after 1 July 2007 and will commence at 7.30 pm (AEST) on 3 May 2016. Contributions made before commencement will not result in an excess. However, excess contributions made after commencement will need to be removed or will be subject to penalty tax. The cap will be indexed to average weekly ordinary time earnings.

After-tax contributions made into defined benefit accounts and constitutionally protected funds will be included in an individual’s lifetime non-concessional cap. If a member of a defined benefit fund exceeds their lifetime cap, ongoing contributions to the defined benefit account can continue but the member will be required to remove, on an annual basis, an equivalent amount (including proxy earnings) from any accumulation account they hold. The amount that could be removed from any accumulation accounts will be limited to the amount of non-concessional contributions made into those accounts since 1 July 2007. Contributions made to a defined benefit account will not be required to be removed.

The lifetime cap is available up to age 74.

 

Concessional contributions cap reduced
Date of effect 1 July 2017

The current concessional contributions cap will reduce to $25,000 from 1 July 2017.

concessional cap reduced

From 1 July 2017, the Government will include notional (estimated) and actual employer contributions in the concessional contributions cap for members of unfunded defined benefit schemes and constitutionally protected funds. Members of these funds will have opportunities to salary sacrifice commensurate with members of accumulation funds. For individuals who were members of a funded defined benefit scheme as at 12 May 2009, the existing grandfathering arrangements will continue.

Tax Exemption on Transition to Retirement Income Stream Earnings removed
Date of effect 1 July 2017

The tax exemption on the earnings of assets supporting Transition to Retirement Income Streams will be removed from 1 July 2017. The rule that allows individuals to treat certain superannuation income stream payments as lump sums for tax purposes will also be removed.

30% tax on super for high income earners
Date of effect 1 July 2017

At present, individuals with combined income and superannuation contributions of more than $300,000 pay an additional contributions tax of 15% on concessional contributions. From 1 July 2017, this income threshold will reduce to $250,000.

The lower Division 293 income threshold will also apply to members of defined benefit schemes and constitutionally protected funds currently covered by the tax. Existing exemptions (such as State higher level office holders and Commonwealth judges) for Division 293 tax will be maintained.

Tax free super balances capped at $1.6m
Date of effect 1 July 2017

A new $1.6 million cap will apply to how much can be transferred into a retirement phase account. Earnings on amounts within the account will continue to be tax-free. Transfers in excess of this $1.6 million cap (including earnings on these excess transferred amounts) will be taxed in a similar way to the tax treatment that applies to excess non-concessional contributions.

Where an individual accumulates amounts in excess of $1.6 million, they will be able to maintain this excess amount in an accumulation phase account (where earnings will be taxed at the concessional rate of 15%).

Members already in the retirement phase with balances above $1.6 million will be required to reduce their retirement balance to $1.6 million by 1 July 2017. Excess balances for these members may be converted to superannuation accumulation phase accounts.

The amount of cap space remaining for a member seeking to make more than one transfer into a retirement phase account will be determined by apportionment.

Commensurate treatment for members of defined benefit schemes will be achieved through changes to the tax arrangements for pension amounts over $100,000 from 1 July 2017.

Tax deductions on super contributions expanded
Date of effect 1 July 2017

All individuals up to age 75 will be able to claim an income tax deduction for personal superannuation contributions from 1 July 2017. This effectively allows all individuals, regardless of their employment circumstances, to make concessional superannuation contributions up to the concessional cap – partially self employed, employees whose employers don’t offer salary sacrifice arrangements, etc.

This is a sensible move which means that it will no longer be necessary for individuals to pass a 10% test in order to be able to claim a deduction for personal superannuation contributions. Currently, an individual can only claim a deduction for personal contributions where less than 10% of their adjusted income for the year relates to employment activities. The 10% test can make it difficult for people who have started their own business to make deductible superannuation contributions where they also have part-time work.

 

 

Notes
Please note there were many other tax changes announced on budget night. If you would like to discuss your individual circumstances in more detail please contact me.
The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

 

 

 



Xero Certified
October 30, 2015, 9:05 am
Filed under: Uncategorized

This certifies that “Steven Millar” has completed and passed the Xero Certified Program

 

Xero Certificate



Capital gains & property: The top questions and answers
September 29, 2015, 6:35 am
Filed under: Uncategorized

The thought of the Australian Tax Office (ATO) sharing up to 50% of any gain you make on an investment decision is enough to strike fear into the hearts of most people.  Given Australia’s love affair with property, it is little wonder that we are often asked about the impact of capital gains tax (CGT) on property.  This month, we explore the most frequently asked questions.

In general, CGT applies to any change of ownership of a CGT asset, unless the asset was acquired before 20 September 1985 when the CGT rules first came into effect.

Most questions about CGT on property are based on the main residence exemption that exempts your home (your main residence) from any CGT exposure when you sell the property.

I jointly own an investment rental property with my elderly mother.  Neither of us has ever lived in the property.  We’ve recently updated our wills.  The lawyer says that if Mum’s will gifts her half of the property to me then this ‘gift’ will not attract capital gains tax.  Is this correct?

Kind of.  Tax law tends to work on the basis that if looks like a duck and walks like a duck then it’s a duck, not whatever your legal document calls it.  Exposure to capital gains tax is a matter of fact and substance.

If you inherit your mother’s share of the property, there would generally be no tax liability until you sell the property.  What is important here is how the CGT is calculated when you ultimately sell.

When the rental property transfers to you from your mother’s estate, the tax rules determine how CGT is calculated when you eventually sell. Basically, if the property was bought on or after 20 September 1985 then when you sell the property your taxable profit will be based on the original purchase price.  That is, you will end up being taxed on the increase in value of the property since it was acquired, including the portion that accrued while your mother was still alive.

In general, if you jointly own an investment property, your individual exposure to CGT will depend on how the property is owned.  If the property is held as tenants in common then any CGT exposure is in line with your ownership interest.  For example, in your case, it is 50% owned by your mother and 50% by you but different people can own different ownership interests.  If the property is owned as joint tenants then any CGT exposure is equally shared by the owners.

I bought a house in 2000, and lived in it until 2003.  I was posted overseas with my job between 2003 and 2011.  During that time my brother lived in the house rent free – he just paid for utilities.  In 2011 to 2012, I rented the house out (no one I knew).  I moved back into the property in 2012 and have just sold the house.  Do I have to pay capital gains tax on the property?

The capital gains tax rules are more understanding about how people live their lives than other laws and in some circumstances allow you to continue to treat your home as your main residence even if you are not actually living in it.

While you are away overseas, if you leave the property vacant or let a friend or relative live in the property rent-free, assuming you do not claim any other property as your main residence, then you can continue to treat the property as your main residence for CGT purposes indefinitely.

If you rent the property out while you are away, the tax laws allow you to still claim the property as your main residence as long as the period you rent it for is not more than a total of 6 years.  This 6 year period can actually be reset by moving back into the property again.

Effectively, you can move out and move back in as many times as you like and still claim the property as your main residence as long as it is your only main residence during that time and if you are renting it out, you do not rent it out for more than a total of 6 years across the period you are claiming the property as your main residence.

During the rental period you can also claim deductions against the rent, even though the property might still be exempt from CGT during this period.

I bought a property in 2008 and expected to move in straight away, but there were tenants still in the property and their lease still had 8 months to go.  I waited for the lease to expire and then moved in. I have lived there ever since and plan to sell later this year. Can you just confirm that I would still qualify for a full CGT exemption on the sale as the property has significantly increased in value?

This is a very common situation but is probably overlooked much of the time.  Unfortunately, you would not qualify for a full exemption in this case.

The main residence rules allow you to treat a property as if it has been your main residence since settlement date as long as you actually move into the property as soon as practicable after settlement.  This is intended to cover situations where there is some delay in moving into the property due to illness or some other “reasonable cause”.  The ATO’s view is that this rule cannot apply if you are waiting for existing tenants to vacate the property.

This means that you would only qualify for a partial exemption under the main residence rules.  We will need to calculate your gross capital gain and then apportion it to reflect the period of time when it was actually your main residence (i.e., from when you actually moved in). As long as you are a resident of Australia and have owned the property for more than 12 months we can also apply the 50% CGT discount to reduce the leftover capital gain.

It will be important in this case to gather as much evidence as possible of non-deductible costs that you have paid in relation to the property such as stamp duty, legal fees, commission paid to real estate agents, interest, rates, insurance, etc.  This will help to reduce the gross capital gain that is subject to tax.

 

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The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.

 

 



Why using the 20k Budget tax deduction might be the wrong decision
June 27, 2015, 6:31 am
Filed under: Uncategorized

So, your business has a turnover under $2 million and you want to know how to use the $20,000 immediate tax deduction that’s been all over the news?

Before you start spending, there are a few things you need to know.

Does your business make a profit?

Deductions are only useful to offset against tax.  If your business makes a loss then a tax deduction is of limited benefit because you’re not paying any tax.  Losses can often be carried forward into future years but you lose the benefit of the immediate deduction.

Small businesses with a turnover of $2m or below make up 97.5% of all Australian businesses.  The latest Australian Taxation Office (ATO) statistics show that well under half of these businesses paid net tax.  That means that the $20,000 instant asset write-off is useful to less than half of the Australian small businesses targeted.

So, if your business makes a loss and you start spending to take advantage of the immediate deduction, all you are likely to do is to increase the size of your losses with no corresponding offset.

Immediate deduction not yet law

The $20,000 instant asset write-off is not yet law.  The ATO only has the capacity to assess on current law not announcements.  Don’t forget that many of last year’s Budget measures have not been enacted.  While we think it is highly unlikely that the other political Parties will block this measure, there is always a small risk that things will change.  So don’t spend more than your business can afford.

Cashflow first!

Cashflow is more important than an immediate deduction.  Assuming your business qualifies for the deduction, the most important consideration is your cashflow.  If there are purchases and equipment that your business needs, that equipment has an immediate benefit to the business, and your cashflow supports the purchase, then go ahead and spend the money.  The $20,000 immediate deduction applies as many times as you like so you can use it for multiple individual purchases.

But, your business still needs to fund the purchase for a period of time until you can claim the tax deduction and then, the deduction is only a portion of the purchase price.

Let’s take the example of a small bakery.  The bakery is in a company structure and has a taxable income for 2014/2015 of $49,545.  The owner purchases a new $13,750 oven on 2 June 2015 and installs it straight away.  The cost of the oven is claimed in the bakery’s 2014/2015 tax return resulting in a tax deduction of $13,750.  So, for the $13,750 spent on the oven, $4,125 is returned as a reduction of the company’s tax liability (i.e., 30% company tax rate in the 2015 income year).  For the bakery, they need the cashflow to support the $13,750 purchase until the businesses tax return is lodged after the end of the financial year.  With the $4,125 reduction of the company’s tax liability, the business has fully funded the remaining $9,625.

From 1 July 2015, the bakery would also receive the small business company tax cut of 1.5%. If the business also had taxable income of $49,545 in the 2016 income year, the tax cut would provide a reduction of $743.

It’s important not to rely on the advice of the person you are purchasing from.  There is a lot of misinformation out there in the market right now and it’s important to know how the concessions apply to you.

Is your business eligible

To use the instant asset write-off, your business needs to be eligible.  The first test is that you have to be a business – not just holding assets for investment purposes.

The second is the aggregated turnover of your business needs to be below $2m.  Aggregated turnover is the annual turnover of the business plus the annual turnover of any “affiliates” or “connected entities”. The aggregation rules are there to prevent businesses splitting their activities to access the concessions.  Another entity is connected with you if:

  • You control or are controlled by that entity; or
  • Both you and that entity are controlled by the same third entity.

What has changed?

In general, a deduction is available for purchases your business makes.  What has changed for small businesses under $2m turnover is the speed at which they can claim a deduction.  Before the Budget announcement, small business could immediately deduct business assets costing less than $1,000.  On Budget night, the Treasurer announced that the threshold for the immediate deduction will increase to $20,000 at 7.30pm, 12 May 2015 for small businesses with an aggregated turnover less than $2 million.  The increased threshold is intended to apply until 30 June 2017.

For small business, assets above $20,000 can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter.

If your business is registered for GST, the cost of the asset needs to be less $20,000 after the GST credits that can be claimed by the business have been subtracted from the purchase price.  If your business is not registered for GST, it is the GST inclusive amount.

How do I make the most of the immediate deduction?

There are a few tricks to applying the instant asset-write off:

Second hand goods are ok

It does not matter if the asset you are buying for your business is new or second hand.  So, you could still claim the deduction on say, second hand machinery you have bought.

What is not included

There are a number of assets that don’t qualify for the instant asset write off as they have their own set of rules.  These include horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc.

Also, you need to be sure that there is a relationship between the asset purchased by the business and how the business generates income.  For example, four big screen televisions are unlikely to be deductible for a plumbing business.

Assets must be ready to use

If you use the $20,000 immediate deduction, you have to start using the asset in the financial year you purchased it (or have it installed ready for use).  This prevents business operators from stockpiling purchases and claiming tax deductions for goods they have no intention of using in the short term.

Business and personal use

Where you use an asset for mixed business and personal use, the tax deduction can only be claimed on the business percentage.  So, if you buy an $18,000 second hand car and use it 80% for business and 20% for personal use, only $14,400 of the $18,000 can be claimed.

What will change on 1 July 2015

For Business

  • Small business tax cut – 1.5% for companies and 5% tax discount for unincorporated small businesses under $2m (capped at $1,000)*
  • Employee share scheme rule changes to make the schemes more attractive particularly to start-ups (covered in our April update)*
  • ‘Fly in fly out’ and ‘drive in drive out’ (FIFO) workers will be excluded from the Zone Tax Offset (ZTO) where their normal residence is not within a ‘zone’*
  • Start-ups able to immediately deduct a range of professional expenses required to start up a business – such as professional, legal and accounting advice.*
  • The way work related deductions for car expenses are calculated will change. The ‘12% of original value method’ and the ‘one‑third of actual expenses method’ will be removed. The ‘cents per kilometre method’ will be modernised, replacing the three current engine size rates with one rate set at 66 cents per kilometre to apply for all cars.

Superannuation

  • The terminally ill will be able to access super earlier*
  • Employers with 20 employees or more must use SuperStream for employee contributions.

Individuals

  • Changes to family tax benefits – income test changes, add on child payment removed, and changes to large family supplement.

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The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.



Landlords Beware: Key issues for property investors
June 27, 2015, 6:16 am
Filed under: Uncategorized

Are you relying on negative gearing?

There has been a lot of negative conversation about negative gearing lately.  But, if you are currently negative gearing your investment property, should you be concerned?

Negative gearing is when you claim more in deductions than you earn for an income producing asset that you have purchased using debt.  It is not limited to property, you can for example negatively gear shares, but property is the dominant negatively geared asset claimed by Australians.

The latest Taxation Statistics show that we claimed $22.5 bn in rental interest deductions in 2012-13 against gross rental income of $36.6 bn.  While these statistics are not as bad as previous years because of the low cost of borrowing ($1.6 bn less than 2011-12), it’s more than the total Defence budget in 2013-14 at $22.1 bn.

The use of these property deductions does not vary widely across income ranges – that is, it’s not just those on the highest income bracket using negative gearing.  The highest proportional losses were experienced by those with incomes (net of the rental loss) between $55,001 and $80,000, where deductions exceeded rental income by more than 28%.  Negative gearing makes owning an investment property accessible to those who potentially would not invest for the long term gain in property value alone.

The Reserve Bank has stated that the ‘hot’ property market, particularly in Sydney, is because “Investor demand continues to drive housing and mortgage markets, with low interest rates and strong competition among lenders translating into robust growth in investor lending.”  In NSW, lending to investors now accounts for almost half of the value of all housing loan approvals.  Demand drives price.

The tax policy experts we canvassed generally held the view that negative gearing distorts the market and – in combination with the CGT discount – provides considerable and unnecessary tax advantages to those who least need them.  To quote one, “[Negative gearing] is a uniquely Australian phenomenon (no other country is so generous) and I would abolish it (and the CGT discount) immediately (and not be so generous as to grandfather existing owners). The suggestion that its (temporary) abolition in the early 1990s led to an increase in rent was based on spurious and incomplete evidence.  More relevant research has subsequently debunked the suggestion that the spike that happened in Sydney house prices had little to do with the abolition and a lot more to do with other, unrelated market forces.”

At present, the Government and property investors want to keep negative gearing.  It’s a lonely policy position. The Government Tax White Paper is due out later this year and may provide a better indication of any potential risk for investment property owners.  But, negative gearing is not something to bank on as a long term strategy.  It’s just a question of which Government will have the support to remove it.

Friends, family and holiday homes

If you have a rental property in a known holiday location, chances are the ATO is looking closely at what you are claiming.  If you rent out your holiday home, you can only claim expenses for the property based on the time the property was rented out or genuinely available for rent.

If you, your relatives or friends use the property for free or at a reduced rent, it is unlikely to be genuinely available for rent and as a result, this may reduce the deductions available.  It’s a tricky balance particularly when you are only allowing friends or relatives to use the property in the down time when renting it out is unlikely.

A property is more likely to be considered unavailable if it is not advertised widely, is located somewhere unappealing or difficult to access, and the rental conditions – price, no children clause, references for short terms stays, etc., – make it unappealing and uncompetitive.

Repairs or maintenance?

Deductions claimed for repairs and maintenance is an area that the Tax Office is looking very closely at so it’s important to understand the rules.  An area of major confusion is the difference between repairs and maintenance, and capital works. While repairs and maintenance can be claimed immediately, the deduction for capital works is generally spread over a number of years.

Repairs must relate directly to the wear and tear resulting from the property being rented out. This generally involves a replacement or renewal of a worn out or broken part – for example, replacing damaged palings of a fence or fixing a broken toilet. The following expenses will not qualify as deductible repairs, but are capital:

  • Replacement of an entire structure (for example, a complete fence, a new hot water system, oven, etc.)
  • Improvements and extensions

Also remember that any repairs and maintenance undertaken to fix problems that existed at the time the property was purchased are not deductible.

Travel expenses to see your property

If you fly to inspect your rental property, stay overnight, and return home the following day, all of the airfares and accommodation expenses would generally be allowed as a deduction. Where travel is combined with a holiday, your travel expenses need to be apportioned. If the main purpose of the trip is to have a holiday and the inspection is incidental, a deduction for travel is not allowed. In these circumstances you can only claim a deduction for the direct costs involved in inspecting the property such as the cost of taking a taxi to see the property and a proportion of your accommodation expenses.

If you drive a car to and from your rental property to collect rent or for inspections, you can claim your car expenses.   Just keep in mind that you need to be able to prove that you needed to visit the property.

Redrawing on your loan

The interest component of your investment property loan is generally deductible.  Take care if you have made redraws on your investment loan for personal purposes.  A portion of the loan may be non-deductible.

Borrowing costs

You are able to claim a deduction for borrowing costs over 5 years such as application fees, mortgage registration and filing, mortgage broker fees, stamp duty on mortgage, title search fee, valuation fee, mortgage insurance and legals on the loan. Life insurance to pay the loan on death is not deductible even if taking out the insurance was a requirement to get finance.  If the loan is repaid early or refinanced, the whole amount including mortgage discharge expenses and penalty interest become deductible.

Tax scams catching out the unwary

Every tax time is an opportunity for scammers to target the unwary. This time around, the scammers are phoning and claiming to be from the prosecutions department of the ATO.  They then state that they believe you have committed fraud and the Sheriff’s Office has been called.  You can of course make this all go away by transferring cash using the details they provide or by giving your details to them.  All of it is fake. There are a number of variations to this fake arrest warrant scam. In some cases a message is left on an answering machine obliging the person to call back.

Understandably for those with outstanding tax debt, these calls can cause concern. If you receive a call like this, you should feel free to hang up.  We can contact the ATO on your behalf to verify there are no known issues.

Or, if you would like to report the scammers, take as many details as possible without giving any information away (phone numbers, supposed section of the ATO, name of the person calling, etc.,) and pass them onto us.  Once again we’ll verify with the ATO and report any known details about the scam for further investigation.

If you are contacted by email by the ATO or a group purporting to represent the ATO, you can forward these emails directly to the ATO at ReportEmailFraud@ato.gov.au.

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The material and contents provided in this publication are informative in nature only.  It is not intended to be advice and you should not act specifically on the basis of this information alone.  If expert assistance is required, professional advice should be obtained.



Xero: Find and Recode
April 20, 2015, 9:50 pm
Filed under: Uncategorized

Brilliant new feature for accountants and bookkeepers



XERO: New and Improved Inventory
March 24, 2015, 10:38 am
Filed under: Uncategorized

Inventory; one of the last limitations of Xero has been resolved, great news!!!

https://www.xero.com/blog/2015/03/introducing-new-and-improved-inventory/




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