Posted , August 13, 2015.

shutterstock_88823146 medIn recent years, the ATO has provided a target area of scrutiny, usually an occupation such as doctors, tradies or salespeople. Last year, they broke with tradition and focused on tax deductions related to computers and mobile phones. In keeping with the change, this year they have issued a warning to owners of investment properties across all sectors as well as work-related expenses and the cash economy.

Investment property

There are 1.8 million Australians – or 8% of the population – with investment properties. The scrutiny is likely to impact squarely on many SMEs who use property as both an investment and place of business.

The ATO estimates that property owners claim an average of $25,717 in deductions including interest, repairs and maintenance.  In most cases, this amount is a net loss which can then be offset against other income. As the popularity of property as an investment continues to grow, we can expect ongoing attention in this area.

You’ll also need to stagger the deductions of any large scale capital works or repairs over several years.

Holiday rental properties are particularly vulnerable, as the ATO now has access to third party data that can determine the value of a property as well as whether or not it was rented out for the period claimed in tax returns. If you own the property with a spouse who claims less tax than yourself, you’ll need to be aware that the deductions or capital expenses need to be shared equally if the property is owned equally.

Work-related expenses

Excessive work-related expenses such as mobile phones, or double-dipping on travel expenses, will also fall under the spotlights as the ATO continues to target tax payers who unfairly claim a disproportionate ratio of expenses used for business purposes.

Cars fall into this category, which means you need to be aware of which accounting method is applicable to you and your business. This is an easy trap that many SMEs fall into but one that is easily avoided.

The cash economy

It’s becoming increasingly easier to track the movement of cash through share registries, banks, titles offices, auction houses and even employees and employers. If you operate in a business that only accepts cash, it’s never been easier – or in your interests – to comply.

In 2014, the ATO uncovered $950 million in liabilities through cross-checking individual returns alone. Further liabilities were uncovered using web-scraping, whereby popular restaurant and café review portals as well as online auction websites easily detected those operating cash-only businesses.

The SuperStream deadline is approaching

By September, 2015, the ATO expects that the 800,000+ employers who are now required to make super guarantee contributions on behalf of their employees to be compliant. With so many different super funds, this can be a complex undertaking. You can simplify the process by either upgrading your existing payroll software or outsourcing the payroll functions.

The changes are designed to provide a single channel when dealing with employee super funds, less time spent dealing with employee issues, a reduction in costs associated with processing contributions and payments as well as a more timely flow of information and contributions.

Whichever way you choose to comply, you’ll need some advice as well as preparing some basic information to support contributions made electronically using SuperStream. Call us on (03) 9587 9747 to discuss your options if you haven’t already decided how to proceed.

Posted , June 30, 2015.

Personal Tax Guide End of Financial Year 2015From a personal perspective, other than charity donation receipts there could be plenty more to think of to maximise any tax returns

Take a look at each of the key tax time areas for what might help reduce tax in your case.

Superannuation

Making extra contributions to your super could help you come out on top. Salary sacrificing contributions (asking your employer to do it on your behalf) to your super account could reduce your overall taxable income, as these contributions are taxed at 15% rather than your PAYG rate. This is particularly relevant for those approaching or over 55 and thinking about retirement. There is discussion that these rules may change in the future, so if you can take any action now before the benefits disappear you won’t be kicking yourself later on.

Investors

Particularly geared towards those with investments in property, just a few things to think about are: prepaying interest on your loan to claim further deductions; if you’re thinking of refinancing your mortgage do so by June 30 as the costs are tax deductible; and bringing forward any needed maintenance expenditure before June 30.

Medical

Don’t forget to give your Accountant a copy of your Medicare Annual Summary information and Private Health Fund summary, if applicable.

Log Books

If you need to claim more than 5000 kilometres per year for using your personal car for work you will need to supply a log book detailing your usage. Details of each trip must include dates, odometer readings (start and end), total kilometres travelled and the purpose of the trip (eg visited client A at location X). If you haven’t kept a log book this year you can only claim 5000 as the maximum, so if you think you may have travelled further for work it is worthwhile starting a log book on 1 July.

Term Deposits

If you have a term deposit maturing before June 30, you can arrange to have it delayed until afterwards so your taxable income is lower.

Get Your Paperwork Together

Fees, losses, bank statements, property management statements, receipts, dividend statements, etc. – get all this in order sooner so that you’re ready to pass this on to your Accountant as soon as possible. The sooner your tax can be lodged the sooner any returns can be given back to you. But don’t just look at this as a time to lodge paperwork – be proactive and ask your accountant the ways that you can minimise tax for next year.

Posted , .

Business End of Financial Year Guide 2015If you’re a business owner, the end of financial year should be geared towards putting your business in the best position tax-wise. Paying less tax on the profits earned, as well as other housekeeping issues, is the name of the game each and every year.

We have outlined the issues that we believe will be the most relevant to our business clients this year.

$20K asset write off

If you are a small business (with turnover under $2M) earning a profit and therefore paying tax, you may want to look into taking advantage of the new $20K asset write off announced in the recent budget in order to offset some of your obligations. However if you are breaking even or running at a loss, spending up to $20K on any new assets will not help your business in any way and will only result in more losses, as it is not a $20K cash in the hand deal and only applies as a deduction after considering your overall taxation position. So first decide if your cash flow can actually bear spending $20K before splashing the cash. In addition, bear in mind there are a few things that do not qualify for the write off (building and construction works, horticultural plants) and there does need to be a direct relationship between the purchase and your business (does a wholesale business need a grand piano, for example).

Other Deductions to Think About

Bringing forward any deductible expenses like repairs and maintenance or prepaying rent, utilities, wages or superannuation may help offset profits. Be sure to record odometer readings from business cars on June 30.

Bad Debts

If you’ve got some outstanding invoices sitting with clients, try to recover any bad debts before the end of June. If they are not recovered they can be written off and are a tax deduction. You do however need to prove to the ATO that you have taken reasonable steps to recover the debt, so document your process for each case.

Bonuses

Sign off any employee bonuses in writing, they do not need to be paid by June 30 but they do need to be recorded.

Depreciation

Review depreciable assets by following the ATO’s guide to the effective life of assets to help you calculate the depreciation rates of your assets.

The ATO Watch List

Review your expenses but be mindful that the ATO will be paying close attention this year to those who are accessing business assets for private use, such as high wealth individuals and SMEs. Some things they will be looking out for is overnight travel, motor vehicle expenses, and the use of phones, computer and electronic devices for work purposes. Make sure you can adequately prove with documentation (such as diary entries/logs) the breakdown of personal and work usage for each item and only claim the deduction on the work related portion.

Stocktake

Retailers and wholesalers with turnover of more than $2 million and a difference in value of more than $5000 between opening and closing stock need to undertake stock take at the end of each financial year. You are exempt if these conditions do not apply.

Unearned Income

If you have received income but not earned it, such as receiving a progress payment for work that will not start until after 1 July, you should defer this income.

Preparing Your Documentation for Your Accountant

Get your files in order so there is less back and forth and you don’t miss any important documents. This includes invoices, cash register tape, receipts, bank statements, loan statements, cash deposit records, list of creditors and debtors, list of depreciating assets, capital gains records, stocktake details, and anything that may be particular to your business. If you’re not sure, ask us.

Planning For Next Year

There are too many strategies to list here, and each case is individual, so talk to your accountant about how to best take advantage of your situation for tax purposes when you discuss your end of year return. Sometimes just a few small changes to the way you do things can make a big impact.