ATO REVIEWING TAXABLE PAYMENTS

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1 December Newsletter Our December newsletter covers a number of topics from immediately deducting certain capital start-up costs, the ATO reviewing taxable payment annual reports and their data matching program with ebay and how it affects Australians, the differences for deducting website costs of a business, life insurance and income protection deductibility and how to not be stung by Fringe Benefits Tax whilst spreading Christmas cheer. If you would like us to provide information in our next news on a particular topic please let us know. We trust you enjoy reading the information. Please contact us on or via on enquiries@respl.com.au if you have any queries in relation to any of the articles. ATO REVIEWING TAXABLE PAYMENTS ANNUAL REPORTS 21 December 23 December 11 January IMPORTANT DATES November IAS Due for lodging and paying Suttie Financial Group closes for Christmas holidays Suttie Financial Group re-opens The ATO has recently advised that it will be contacting businesses from the building and construction industries regarding information provided in their Taxable payment annual reports (reporting details of taxable payments made to contractors) where businesses have: Provided a report with missing or invalid ABNs; 28 January 2016 Super guarantee contributions for quarter 2, 16 employers must make contributions to the fund by this date. Included amounts paid for GST when the contractor isn t registered for GST; Not lodged a report, when the ATO s records indicate you should; or Advised the ATO they are not required to report, but ATO s records indicate they are. 29 February 2016 December 15 BAS due for both lodging through a tax agent or personally 1 P a g e

2 IMMEDIATE DEDUCTIBILITY OF CAPITAL START-UP EXPENSES From 1 July this year, the ATO has issued new provisions in regards to allowable deductions for small businesses to claim some of their start-up costs as immediate deductions in the year which they were incurred. The ATO has identified two areas which they are allowing the option to immediately provide a deduction; Payments to Australian government agencies include ASIC fees for setting up companies, costs associated with transferring assets into the entity which is being set up (for example, stamp duty on any asset besides real estate). What it doesn t include is expenditure relating to taxes of general application, such as income tax. Advice/services relating to the structure/operations of the proposed business such as advice from a lawyer or an accountant on how the business may be structured, as well as the costs associated professional advice on the viability of the proposed business and also the costs involved in developing a business plan are considered immediate deductions under the recent changes. So are costs which are incurred due to crowd-source equity funding are deductible but not the direct costs of the capital, such as interest, dividends or capital repayments. Example A- Start-up expense which can be immediately deducted Frank owns a small company and is setting up a florist. Frank hires a consultant to determine the most profitable location for him to set up his new florist. Because Frank s company is a small business entity and they are intending to start up the florist business the cost of hiring the consultant for advice is allowed to be immediately deductible in that financial year. Example B- Capital expenditure which cannot be immediately deducted Geoff owns a small construction business, he intends to expand his business and consults a financial advisor about the best way to finance and go about the expansion. Since Geoff s business is already established, these costs would not be deductible under the new provisions ATO DATA MATCHING PROGRAM AND EBAY The ATO has recently announced that it will soon acquire online selling data in relation to between 15,000 and 25,000 users who sold goods and services for $10,000 or more from the period 1st July 2014 to 30 th June. The data which the ATO is aiming to obtain will help them match online selling accounts to taxpayers, everything from name, address and contact information. 2 P a g e

3 TAX DEDUCTIONS OF WEBSITE COSTS The eligibility of a taxpayer to claim a deduction for the costs incurred due to setting up a website comes down to the timing of when the expense was paid. The two issues with regard to timing are; if the expense was incurred at the inception of the business or after the business had already been established. The difference between the two affects the method which can be used to claim the expense. These differences are outlined below: If the outlay for the expense was in the start-up phase of the business (before it starts trading), the expense can only be claimed at a rate of 20% per year (for 5 years), but you can only start to claim it in the financial year when the business commences trading. If the expense was incurred after the business starts trading, it all depends on how much the website cost the taxpayer, i.e. if it is below the current threshold of $20,000 for the 2016 FY. If the expense incurred was less than $20,000 the expense for the website is completely deductible. But if the website cost over $20,000 it is able to be placed in the small business pool to be depreciated in the first year by 15% and 30% each year after that. The above information is only related to the cost of having the website implemented; the ongoing expenses such as services fees, domain fees, etc. are totally deducted in the year in which they were incurred. For example: In August, a small business spends $3,000 on the development for a website for another avenue for advertisement. Throughout the year they also incurred $550 in service fees and paid $50 for their website name. As the business is a small business, the $3,000 is able to be completely deducted because it falls under the $20,000 threshold and the business was already operating when the expense was incurred. If the small business was just starting and had not begun trading, the $3,000 would have to be depreciated over 5 years (20% per year) and would only be able to claim a deduction for $600 in the current financial year. In both the cases the $550 of service fees and the $50 for the website domain would be deductible, as they are ongoing expenses of maintaining the website. 3 P a g e

4 CHRISTMAS, GIFTS AND FRINGE BENEFITS TAX As Christmas and New Year are fast approaching, there are a few important things to consider in regards to potential Fringe Benefits Tax (FBT) implications of entertainment and gifts. The most important issues to consider is that the ATO s less than $300 inc GST minor benefit exemption and the fact the ATO now allows that different benefits provided at (or around) the same time are not added together when calculating this threshold. In a nutshell, this means that a gift and a Christmas party even though provided at the same time may be exempt from FBT, on the provision that the gift and party cost less than $300 inc GST each (per head). Below we have provided you a list of Christmas gifts which ARE NOT considered to be entertainment A Christmas hamper, bottle of whiskey, wine etc.; Gift vouchers, a bottle of perfume, flowers, a pen set etc. Generally the FBT and income tax rules for these gifts are as follows; Gifts to employees and their family are tax deductable, can claim GST credits and FBT is payable (unless the gift is <$300 inc GST) Gifts to clients, suppliers, etc. no FBT at all despite cost, but GST credits and tax deductions are allowed Gifts which ARE considered to be entertainment Tickets to sports events, theatre, movie, etc; and Holiday airline tickets or tickets into amusement parks. Generally the FBT and income tax rules for these entertainment gifts are as follows; Gifts to employees and family are not tax deductible, GST credits can t be claimed and are FBT exempt if <$300 otherwise if the gift is >$300 inc GST you can claim a deduction, GST credits and it is subject to FBT Gifts to clients and suppliers etc. no FBT, no tax deduction and no GST credits can be claimed. Always remember that if you do happen to provide gifts, generally the most tax effective way to show employees your Christmas spirit is providing non-entertainment gifts of <$300 inc GST. 4 P a g e

5 INCOME PROTECTION VS LIFE INSURANCE Most people have a broad understanding of what a life insurance policy is, that it s pretty much an insurance policy to provide a benefit if you die prematurely or become totally or permanently disabled. But there are other features and benefits which are available that can potentially provide income streams if you are unable to work due to illness or accident. The tax treatment of life insurance and income protection are very different Generally a life insurance policy provides a lump sum on death or diagnosis of a terminal illness. This lump sum can be used to help pay off debts, as well as pay for carers in the case of total or permanent disablement. With life insurance, the premiums are not allowable as a tax deduction, but also the payout benefits from the insurance policy are generally not taxable either. Providing a hassle free payment in a time when it is needed. Income protection on the other hand provides a replacement income of up to 75% of your current income if you are unable to work due to injury or illness. It is effectively an income stream that can continue even up to 65 depending on the policy. The premiums on income protection are tax deductible but the income stream benefits which are paid are taxable under Australian tax law. As this is just a broad comparison should you have any questions or if are interested in some sort of personal insurance, please contact us and we will be able to talk you through what is available. As the year comes to a close, Suttie Financial Group would like to wish you and your family a very merry Christmas and a safe and prosperous New Year General Advice Warning: Information provided on this newsletter is general in nature only and does not constitute personal advice. The information has been prepared without taking into account your personal objectives or needs. Before acting on any information in this newsletter you should consider the appropriateness of the information having regard to your objectives and needs. If there is any area within this newsletter that you would like to discuss, please call us. We are here to help 5 P a g e