TaxWise Business News 2017/18 The small business $20,000 instant asset writeoff extended time to go shopping! The small business write-off threshold of $20,000 has been extended to 30 June 2018 and is available to all small businesses with an aggregated turnover of less than $10 million. After 30 June this year, the threshold will reduce to $1,000. If you have upcoming business expenses, now might be a good time to do some shopping so that you can claim the deduction in the current financial year! The $20,000 instant asset writeoff explained If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is used for each asset that costs less than $20,000. You would then claim the deduction through your tax return, in the year the asset was first used or installed ready for use. It is important to note that the cost of an asset includes both the amount you paid for it and any additional amounts you spent on transporting and installing it. Note! There is no limit to how many assets you can claim the deduction for. However, each one must cost less than $20,000. If you later sell the asset for which you claimed an instant asset writeoff, you include the taxable purpose proportion of the amount you received for the asset in your assessable income. What assets are included? Assets that cost less than $20,000 Assets that are used for business purposes Physical assets e.g. computers, phones, vehicles, tools etc New or second-hand assets Tip! You may be able to claim a deduction for business website costs using the simplified depreciation rules. Speak to us to find out more. What assets are excluded? Assets that cost more than $20,000 Assets that are used for personal purposes Assets that are leased out (or expected to be leased out) for more than 50% of the time on a depreciating asset lease Page 1 of 12
Assets you already allocated to a low-value pool Horticultural plants e.g. grapevines Software allocated to a software development pool Capital works (and your instant asset write-off threshold is $20,000 inclusive of any GST). Tip! For further information about GST impacts, speak to us. Tip! Capital works used to produce income, including buildings and structural improvements, are written off over a longer period than other depreciating assets. Speak to us to find out more. How this works You buy a new computer for $6,800 that you use 80% of the time for business purposes and 20% of the time for personal purposes. You also buy a second-hand printer for $700 which you use 100% of the time for business purposes. For the computer, you would calculate your instant asset write-off as 80% (the business use proportion) of $6,800, so you would claim $5,440. For the printer, you would claim the entire cost of $700. Are you registered for GST? The threshold amount of $20,000 assumes that you are not registered for GST. If you are registered for GST, you exclude the GST amount you paid on the asset when you calculate your depreciation amounts (and your instant asset write-off threshold is $20,000 exclusive of any GST). If you are not registered for GST, you include the GST amount you paid on the asset in your depreciation calculations Changes are coming to GST from 1 July 2018: is your business ready? From 1 July 2018, Australian GST will apply to sales of low value goods (AUD $1,000 or less) that are imported by consumers into Australia. Simply put, these GST changes mean that: all goods imported by Australian consumers, even those worth less than $1,000, will be subject to 10% GST; overseas retailers who sell goods to Australian consumers and make more than AUD $75,000 per year will be required to register and impose GST. Under the old GST laws, this only applied to retailers who were selling goods valued at over $1,000. The existing processes to collect GST on imports above $1,000 at the border are unchanged. Page 2 of 12
To do! If your business meets the $75,000 registration turnover threshold, you will need to act now to review your business systems to ensure that you are compliant from 1 July this year. You will also need to: ensure you are registered for GST charge GST to customers on low value imported goods lodge a return to the ATO. Which businesses are affected? Suppliers of low value goods Electronic distribution platforms (EDPs) online marketplaces that assist in the importation of goods into Australia will essentially be treated as a supplier under these new measures, and be required to register for, collect and remit GST. Re-deliverers re-deliverers are used by Australian consumers in cases where the overseas retailers do not deliver to Australia (e.g. offshore mailbox services). The redeliverer will charge GST on the goods and for their services in bringing the goods to you, if they are registered or required to be registered. Sales of low value imported goods to Australian GSTregistered businesses GST only applies to sales of low value imported goods to consumers in Australia. Your customer is not a consumer if they are a GST-registered business who purchases the goods for use in their business in Australia. If your business is the recipient of low value goods, you should notify suppliers of your GST registration to ensure you are not being charged GST twice. Tip! Make sure you are not charged GST twice by providing a copy of your receipt that shows GST has already been paid if you were charged GST when you bought the goods; and the goods are low value goods. If you do not provide this receipt before GST is charged at the border, you will have to pay GST again and will need to seek a refund of GST from the supplier, by declaring or providing evidence that you paid GST when the goods were imported. Note! Your business systems will need to be able to determine whether the sales are made to consumers in Australia or to businesses that are registered for Australian GST. To do! If you are affected by these changes, speak to us to discuss process strategies and options to manage the impact of these new obligations on your business. Rental Property. What you can and can t claim Need to do some repairs on your rental property? You may be able to deduct these repairs and maintenance costs. The first thing to remember is that the repairs and maintenance costs must relate directly to wear and tear or other damage that occurred as a result of you renting out the property. Repairs vs maintenance Repairs mean work to make good or remedy defects in, damage to or deterioration of the property. It generally involves a replacement or renewal of a Page 3 of 12
worn out or broken part (e.g. replacing guttering damaged in a storm, fixing a fence damaged by a falling tree branch). Maintenance is preventing or fixing existing deterioration (e.g. painting the property, oiling the deck). Tip! If you conduct a project that includes both repairs and improvements to your property, you can only claim an income tax deduction for the cost of your repairs if you can separate the cost of the repairs from the cost of the improvements. If you hire a builder or other professional to carry out these works for you, we recommend you ask for an itemised invoice to help work out your claim. Expenses that you can immediately deduct You can generally claim an immediate deduction (that is, in the income year that you pay for the costs) for your expenses related to the repairs and maintenance of your property, including interest on loans. If your property is negatively geared you may be able to deduct the full amount of rental expenses against your rental and other income, such as salary and wages and business income. Expenses for which you may be entitled to claim an immediate deduction include: advertising for tenants body corporate fees and charges council rates water charges land tax cleaning gardening and lawn mowing pest control insurance (building, contents, public liability) interest expenses property agent's fees and commission repairs and maintenance some legal expenses. Travel expenses for Rental Property From 1 July 2017, travel expenses relating to a residential investment property are no longer deductible. Under new laws, you are no longer able to claim any deductions for the cost of travel you incur relating to a residential rental property. You can only claim deductions if you are carrying on a business of property investing or are a corporate tax entity, public unit trust, managed investment trust unit trust or partnership or super fund that is not an SMSF. Expenses that you can t immediately deduct You cannot claim the total costs of repairs and maintenance in the year you paid them if they did not relate directly to wear and tear or other damage occurring due to renting out your property (e.g. remodelling a bathroom or adding a pergola). These are classified as improvements and are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for decline in value. Note! Improvement means work that: provides something new furthers the income-producing ability or expected life of the property changes the character of the item you have improved goes beyond just restoring the efficient functioning of the property. Page 4 of 12
How this works! Sarah replaced a fibre cement sheeting (fibro) wall inside her property because it was damaged by tenants. She replaced the old wall with a brick feature wall. The new wall is an improvement because Sarah did more than just restore the efficient functioning of the wall. This means Sarah cannot claim the cost of the new wall as a repair, but she can claim it as capital works expenditure. However, had Sarah replaced the fibro with a current equivalent, such as plasterboard, she could have claimed her costs as a repair. This is because it would have merely restored the efficient functioning of the wall without changing its character, even though a different material was used. Tip! If you invest in a rental property, you'll need to keep records right from the start, work out what expenses you can claim as deductions, and declare all your rental-related income in your tax return. New depreciation legislation for Australian property investors The new legislation was passed which means owners of second-hand residential properties (where contracts exchanged after 7:30pm on the 9th of May 2017) will be ineligible to claim depreciation on plant and equipment assets, such as air conditioning units, solar panels or carpet. The good news is that there are still thousands of dollars to be claimed by Australian property investors, as there has been no change to capital works deductions, a claim available for the structure of a building and fixed assets such as doors, basins, windows or retaining walls. These deductions typically make up between 85 to 90 per cent of an investor s total claimable amount. Previously existing depreciation legislation will be grandfathered, which means investors who already made a purchase prior to this date can continue to claim depreciation deductions as per before. Investors who purchase brand new residential properties and commercial owners or tenants, who use their property for the purposes of carrying on a business, are also unaffected. Owners of second-hand properties who exchanged after 7:30pm on the 9th of May 2017 will still be able to claim depreciation for plant and equipment assets they purchase and directly incur an expense on. Superannuation: what employers need to know Superannuation is money you pay for your workers to provide for their retirement. Generally, if you pay an employee $450 or more before tax in a calendar month, you have to pay super on top of their wages. The minimum you must pay is called the super guarantee (SG). The SG is 9.5% of an employee s ordinary time earnings. Note! SG payments are due on 28 January 2018. Make sure you pay the SG on time to avoid paying the SG charge! Employer super quick check Here's how to run a quick check of your super obligations to make sure you have everything sorted. Check you are paying super to all eligible workers (some contractors may be entitled to super) Check you are paying the right amount Page 5 of 12
Check you are paying on time o It is tax deductible against your business income o At a minimum, you can pay super quarterly o If you fail to pay on time, you may need to pay a SG charge, which is not tax deductible Check you are paying to the right place (pay super into your worker s fund of choice or your default fund) Check you are paying the right way o Pay the SuperStream way send both the payment and data electronically in a standard format o You may be able to use the free Small Business Super Clearing House to distribute payments to your employees' super funds Check you are keeping accurate records The ATO has developed a fillable TFN declaration form which is available on their website. You can download it from ato.gov.au/tfndec or even better, ask your new employee to download the form and fill it in on the screen. Once it is filled in, print it off, get your employee s signature then send the original copy to the ATO using the address on the form within 14 days. Tip! Don t forget to keep a copy for your files! Tool for applying the margin scheme to a property sale The ATO is recommending that taxpayers use their recently updated GST property decision tool to work out if GST applies to their property sales. The tool can be used to determine GST on the sale, lease or purchase of real property, and was recently updated for easier use on mobile devices. In particular, after providing the relevant information, the tool will generate a GST decision that: advises whether GST is payable on a sale; estimates the amount of GST payable when applying the margin scheme; and Hiring new employees? TFN declaration forms can be downloaded There is a lot of paperwork to complete when you hire new employees. The good news is: you no longer need to order the form and wait for it to be mailed to you. advises whether the taxpayer is eligible to claim input tax credits. Note that the ATO does not record any personal information and users will remain anonymous. Page 6 of 12
Other GST News Property Transactions The Government has released draft legislation on "improving the integrity of GST on property transactions", as announced in the 2017/18 Federal Budget. They intend to amend the GST law so that, from 1 July 2018, purchasers will withhold the GST on the purchase price of new residential premises and new residential subdivisions, and remit the GST directly to the ATO as part of settlement. This is to address tax evasion through "phoenixing arrangements", where developers collect GST from their customers but dissolve their company to avoid paying it to the ATO. To provide certainty for contracts that have already been entered into, the draft legislation provides a two-year transitional arrangement contracts entered into before 1 July 2018 will not be affected as long as the transaction settles before 1 July 2020. Editor: In addition, the GST Act has been amended to ensure that supplies of digital currency receive equivalent GST treatment to supplies of money (particularly foreign currency). ATO's focus on workrelated expenses This year, the ATO is paying close attention to what people are claiming as 'other' work-related expense deductions, so it's important when taxpayers claim these expenses that they have records to show: they spent the money themselves and were not reimbursed; the expense was directly related to earning their income; and they have a record to prove it. If the expense is for work and private use, the taxpayer can only claim a deduction for the work-related portion. Importantly, taxpayers are not automatically entitled to claim standard deductions, but need to be able to show how they worked out their claims. Editor: Other work related expenses are expenses incurred by employees in relation to their work that are not for travel, clothing or self-education, such as home office expenses. Taxpayer can't explain where she got the money to pay her expenses The Administrative Appeals Tribunal has upheld amended assessments issued by the ATO to a beauty technician, based on the high volume of money passing through the taxpayer's various accounts when compared with the modest income she had included in her tax returns. For example, in the 2015 income year, the taxpayer had declared income of $61,842, but the ATO s analysis of her bank accounts, records of international money transfers, and casino data suggested she had spent $107,328. The Tribunal noted that, in cases like this, the ATO is effectively making an "informed guess" as to the taxpayer s income, but, provided there is a rational basis for the estimate, the ATO s assessment will stand, unless the taxpayer can: demonstrate the assessment was excessive; and establish what the correct (or more nearly correct) figure is. After hearing from the taxpayer and witnesses at the hearing, and after reviewing the documents, the Tribunal was not persuaded that the taxpayer had Page 7 of 12
demonstrated that the Commissioner s assessments were 'excessive'. In particular, the taxpayer s explanation regarding her income and expenditure was not supported by the objective facts in the hearing, being: the 'churn' through her bank accounts; the absence of contemporaneous records beyond the bank accounts (for example, she was always paid in cash without receiving pay slips); and the deficiency in corroborating evidence from other witnesses. In addition to upholding the amended assessments, the Tribunal was also satisfied that the ATO's 75% administrative penalty on top of the tax payable was properly imposed. Uber driver not an 'employee' In a recent case, an Uber driver's access to the Uber app had been terminated as a result of failing to maintain an adequate overall rating, and he applied to the Fair Work Commission (FWC) for an unfair dismissal claim against Uber. However, the FWC held that he was an independent contractor and not an 'employee', and therefore his application for unfair dismissal was dismissed. Editor: Although this was not a tax case, it is obviously of interest to anyone involved in the 'gig economy', and it may have flowon implications for other employment issues, such as super guarantee. New small business benchmarks are available The ATO has updated its small business benchmarks with the latest data from the 2015/16 financial year. In addition to helping businesses to see if they are performing within their industry average, the benchmarks are one of the tools the ATO uses to identify businesses that may be a higher risk. Editor: That is, they use the benchmarks to pick their audit targets, so please contact us if you would like us to check whether your data is inside or outside the average benchmark range for your industry. Continued ATO focus on holiday home rentals The ATO has recently advised that they are setting their sights on the large number of mistakes, errors and false claims made by rental property owners who use their own property for personal holidays. While it confirms that the private use of holiday homes by friends and family is entirely legitimate, the ATO states that such use reduces a taxpayer s ability to earn income from the property, and therefore impacts on (i.e., reduces) the amount of claimable deductions. As a result, the ATO has reminded holiday home owners that: They can only claim deductions for a holiday home with respect to periods it is genuinely available for rent. They cannot place unreasonable conditions on prospective tenants/renters, set rental rates above market value, or fail to advertise a holiday home in a manner that targets people who would be interested in it and still claim that the property was genuinely available for rent. Where a property is rented to friends or relatives at mates rates, they can only claim deductions for expenses up to the amount of the income received. Property owners whose claims are disproportionate to the income received can expect greater scrutiny from the ATO. Page 8 of 12
Get ready for Single Touch Payroll Single Touch Payroll (or 'STP') is mandatory for 'substantial employers' (being those with 20 or more employees) from 1 July 2018. All employers are required to count the number of employees on their payroll on 1 April 2018 to find out if they are a substantial employer (note that this can be done after 1 April, but they need to count the employees who were on their payroll on 1 April). They must count each employee (not the full time equivalent), including full-time, part-time and casual employees, as well as those employees based overseas or absent or on leave (paid or unpaid). Employers that are part of a company group must include the total number of employees employed by all member companies of the wholly-owned group. However, employers don't have to include the following in the headcount: any employees who ceased work before 1 April; casual employees who did not work in March; independent contractors; staff provided by a third-party labour hire organisation; company directors or office holders; or religious practitioners. Note that, although directors, office holders and religious practitioners are not included in the headcount, if the employer starts reporting through STP, the payment information of these individuals will need to be reported (because the payments are subject to withholding and are currently reported in the Individual non-business payment summary). Employers don't need to send the ATO the headcount information, but they may want to keep a copy for their own records. Once an employer becomes a substantial employer, they will need to continue reporting through STP even if their employee numbers drop to 19 or less (unless they apply for and are granted an exemption). Editor: Please contact our office if you need any assistance regarding the new STP regime. ATO warning regarding small business recordkeeping According to the ATO, of all of the things that can cause small businesses to fold, "high on that list is poor record keeping". More than half of the businesses they visited in their Protecting honest business campaign needed to improve their record keeping. Issues they found include businesses: estimating their sales and income; using the 'no sale' and 'void' button on cash registers when taking cash payments; not keeping cash register tapes and not reconciling at the end of the day; and paying their employees cash-inhand. They are writing to these businesses to recommend they attend one of the ATO's record keeping workshops, which cover why good record keeping is important and how it will save them time. Page 9 of 12
ATO data matching program Visa Holders The ATO will acquire information on holders of a Visa from the Department of Immigration and Border Protection for the 2017/18, 2018/19 and 2019/20 financial years. It is estimated that records of 20 million individuals will be obtained over the course of the three year period. These records will be electronically matched with ATO data holdings to identify non compliance with obligations under taxation and superannuation laws, as well as (for example) support compliance activities under Australia s foreign investment rules. New superannuation rates and thresholds released The ATO has published the key superannuation rates and thresholds for the 2018/19 income year. The Non-Concessional Contributions cap will remain at $100,000 (although transitional arrangements may apply), and the Concessional Contributions cap will remain at $25,000. The CGT cap amount will be $1,480,000. The Division 293 tax threshold will be $250,000. The maximum super contribution base for superannuation guarantee purposes will be $54,030 per quarter. The maximum superannuation cocontribution entitlement for the 2018/19 income year will remain at $500 (with the lower income threshold increasing to $37,697 and the higher income threshold increasing to $52,697). The superannuation benefit caps for the 2018/19 income year include: a low rate cap amount of $205,000; an untaxed plan cap amount of $1,480,000; a general transfer balance cap of $1.6m; a defined benefit income cap of $100,000; an ETP cap amount for life benefit termination payments and death benefit termination payments of $205,000; and the tax-free part of genuine redundancy payments and early retirement scheme payments comprising a base limit of $10,399 and for each complete year of service an additional $5,200. Super guarantee payable on public holidays and additional hours! The Federal Court has held that superannuation guarantee contributions were payable with respect to the additional hours and public holidays component of annualised salaries paid by BlueScope Steel, on the basis that these particular components formed part of ordinary time earnings ( OTE ). Under an enterprise agreement, primarily due to the specific working environment, the employees in question were required to be available (at short notice) 365 days per year and 24 hours per day, including a requirement to work additional hours and public holidays. As such, the employees were paid an annualised salary, which was made up of a base rate, as well as a component which absorbed all additional payments, such as Page 10 of 12
penalty rates, allowances, public holiday loadings and pay-outs, and payment for additional hours worked outside the normal rostered hours. However, when paying superannuation, adjustments were made to the annualised salary, so that the additional hours and public holiday components were not included by BlueScope Steel as OTE for superannuation guarantee purposes. Decision The Federal Court did not agree with the employer s adjustments, instead finding that, under the circumstances, the additional hours and public holidays formed part of an employee s ordinary hours of work and, therefore, were considered OTE for superannuation guarantee purposes. This remained the case whether or not the employee actually worked the additional hours or the public holidays. That is, the ordinary conditions of the employee s work required them to be available outside their rostered shifts and on public holidays (on short notice) and, as this was factored into their annual salary, they were considered ordinary hours for these particular employees. Commissioner s speech highlights ATO s focus areas undeclared income; individuals' unexplained wealth or lifestyle; incorrectly claimed private expenses; unpaid superannuation guarantee; and cash-only businesses and those with low usage of merchant banking facilities, with black economy visits to over 2,600 businesses across 8 locations in 2017. The Commissioner also highlighted ongoing ATO concern with respect to the predicted 'work-related expense claim gap', which (at least by the ATO s estimates) could amount to being greater than the 'large corporate tax gap' of $2.5 billion of lost revenue. DISCLAIMER Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information s applicability to their particular circumstances. Recently, the Commissioner of Taxation highlighted the areas in which the ATO has recently increased its focus, including: Page 11 of 12
Key tax dates Quarterly lodgment obligation Original due date BAS agent concession for lodgment and payment if lodging by the BAS Agent Portal, PLS or ECI Quarter 4, 2016 17 28 July 2017 25 August 2017 Quarter 1, 2017 18 28 October 2017 25 November 2017 n/a Quarter 2, 2017 18 28 February 2018 The Quarter 2 lodgment due date is more than eight weeks after the end of the quarter, which is similar to the electronic lodgment concession available for the other three quarters. As a result, lodgment concessions are not available for Quarter 2. Quarter 3, 2017 18 28 April 2018 26 May 2018 25 August 2018 Quarter 4, 2017 18 28 July 2018 To be confirmed when the BAS agent lodgment program 2018 19 is developed. Page 12 of 12