Author: Glance Consultants

Christmas & Tax 

With the festive season just around the corner (or already under way), many business owners will be gearing up for year-end celebrations with both employees and clients. Knowing the rules around FBT, GST credits and what is or isn’t tax deductible can help avoid unwelcome surprises on the tax front. Holiday celebrations generally take the form of Christmas parties and/or gift giving.

 

Parties

Where a party is held on business premises during a working day, is attended by current employees only and comes in at less than $300 a head (GST-inclusive), FBT does not apply, the cost of the function is not tax deductible and GST credits cannot be claimed.

Where the function is held off business premises, say at a restaurant, or is also attended by the employees’ partners, FBT applies where the GST-inclusive cost per head is $300 or more, but not where the cost is below the $300 threshold, as it would be regarded as a minor or infrequent benefit. Where FBT applies, it applies to the entire cost of the event, not just to the excess over $300, while the cost of holding the function is tax deductible and GST credits can be claimed.

Where clients also attend, FBT will not apply to the cost applicable to them (not being employees), but those costs will not be tax deductible and GST credits will not be available.

Gifts

First, you need to work out whether the gift itself is in the nature of entertainment – for example, movie or theatre tickets, admission to sporting events, holiday travel or accommodation vouchers.

Where the recipient of an entertainment gift is an employee, and the GST-inclusive cost is below $300, the minor or infrequent exemption may apply so that FBT is not payable, in which case the cost will not be tax deductible and GST credits are not claimable. For larger entertainment gifts to employees, however, FBT applies, the cost is deductible and GST credits can be claimed.

Where the gift is not in the nature of entertainment and it falls below $300, the FBT minor or infrequent exemption may apply – for example, Christmas hampers, bottles of alcohol, pen sets, gift vouchers.

But because the entertainment rules do not apply, the cost of the gift is tax deductible and GST credits are claimable.

Where a gift is made to a client, the $300 FBT minor benefit exemption falls by the wayside, as long as it is not an entertainment gift and the gift was made in the reasonable expectation of creating goodwill and boosting future sales. Such gifts are uncapped (within reason) and are tax deductible to the business. GST credits are also claimable.

Best approach for employees

Provided it’s not a regular thing, taking employees out for Christmas lunch or dinner escapes FBT, as long as the cost per head stays below the $300 threshold. While the cost of the function will still be non-deductible, that has much less of a cash-flow impact on the business than the grossed-up FBT amounts.

Combined with a non-extravagant off-site

Christmas party, making a non-entertainment gift costing up to $299 is a very tax-effective way of showing your appreciation. Gift cards are always well-received and even where they can be used to make a wide variety of purchases (including theatre tickets and the like), they will not be regarded as an entertainment gift, which means the cost is tax deductible and GST credits can be claimed.

Best approach for clients

While FBT is off the table for business clients, making a non-entertainment gift (tax deductible; no dollar limit) is actually much more tax-effective than wining and dining a key client (non-deductible entertainment). If you put some thought into what gift to buy a client and in some cases deliver it yourself, you may make much more of an impact than joining them in one of many restaurant meals in their already crowded Christmas calendar.

If you need help on the tax treatment of holiday celebrations and gifting, please give us a call.

 

Deduction for self-education courses

So, you are undertaking a course or further education that relates to your work or business in some way – and you have to pay for the costs of the training or course. Well, the question of whether you can claim a deduction for this cost as “self-education” expenses is not always a clear cut matter.

As a broad proposition, self-education expenses are tax deductible if there is a sufficient connection with your income-producing activities.

In particular, if the expenses are incurred in improving your ability to carry out your current duties, they should be deductible – especially if they are likely to result in a pay rise. By way of a colourful example, the costs of flying lessons for an air traffic controller have been allowed on this basis.

Likewise, a deduction for overseas travel expenses or formal study tour costs incurred by a person may be allowed where the clear purpose of the travel or tour is to increase the specific skills that relate to your job – especially if they may lead to a promotion or pay increase. (But there would always need to be an apportionment for any “private” element of the travel or study tour.)

However, self-education expenses would not be deductible if they were incurred to help you obtain skills for a new occupation.

Nor are they likely to be deductible if they are incurred in a preliminary manner before commencing your new job or a new occupation.

In short, self-education costs will not be deductible if they are undertaken to obtain a new career or obtain new employment.

On the other hand, if you are employed or are self-employed, then the cost of courses or training incurred would be deductible if there is a relevant connection with earning income by way of enabling you to carry out your existing duties better and/ or more skilfully. This could include, for example, undertaking a higher degree that is connected with your current job – and, again, especially if it is likely to lead to increased pay.

Likewise, the expenditure incurred in attending professional development courses and seminars (eg, CPD events) would be deductible (unless these are paid for by your employer).

Similarly, technical books and digital subscription services that improve your knowledge and/or skills in the areas related to your occupation would be deductible – but subject to an apportionment for any “private” usage of the material. For example, an English high school teacher may buy many books which are relevant to his or her job – but there may also be a personal use element.

Which all goes to show that nothing about deductions for self-education expenses is entirely clear cut – so come and see us if you have this issue.

 

Unwrap your future: 12 super tips for a merry and bright retirement

Christmas is a time for giving, but it’s also a great time to give your future self the gift of financial security. Here are 12 simple superannuation tips to help you make the most of your super fund – wrapped up with a touch of festive cheer!

 

1. Consolidate your superannuation

If you’ve worked multiple jobs, you might have multiple super accounts. Consolidating them into one fund can save you money on fees, similar to decorating one Christmas tree instead of several. The good news is that consolidating is easy through ATO online services or your myGov account where you can also search for lost or unclaimed super.

Before consolidating, consider potential impacts like the loss of insurance coverage, fees, investment options, and tax implications to ensure the transfer aligns with your needs and adds value.

2. Review your investment strategy

Your super is an investment for your future, so make sure it aligns with your goals and risk tolerance.

Think of it like choosing the perfect star for your Christmas tree – get it right, and it will shine brightly for years. For self managed super funds (SMSFs), it’s a legal requirement to have a documented investment strategy aligned with your objectives, which must be reviewed regularly. Now is a great time to ensure your strategy supports your retirement goals.

3. Check your insurance coverage

Many super funds offer default insurance, including life, total and permanent disablement (TPD), and income protection coverage. It’s essential to review your cover to ensure it provides adequate protection for you and your family. If you manage an SMSF, you’re also required to consider and document the insurance needs of each member as part of the investment strategy.

Seek professional advice to ensure your current cover is sufficient for death, disability or illness.

4. Check your fund’s performance

Not all super funds are created equal, and performance can vary significantly. Regularly check your fund’s performance compared to others to ensure it’s performing. If your fund’s performance is underwhelming, consider revisiting your investment strategy or switching to another fund that better aligns with your retirement goals.

5. Nominate your beneficiaries

Super isn’t automatically part of your estate, so it’s important to nominate valid beneficiaries to ensure your funds go to the right people. Without a valid nomination, your super fund may decide who receives the benefits, regardless of your Will.

Regularly review your beneficiary nominations, especially when circumstances change, to ensure they are up to date and reflect your preference.

6. Make extra contributions

Even small additional contributions can make a big difference to your super balance at retirement thanks to compounding returns. It’s like adding an extra treat to a Christmas stocking – small now, but a delightful surprise in the future. In addition to the 11.5% employer super guarantee contributions for 2024/25, adding extra contributions through salary sacrificing or personal after-tax payments can boost your retirement savings. Just be mindful of contribution caps to avoid extra tax. Small sacrifices now can lead to substantial benefits later.

7. Salary sacrifice

Salary sacrificing is an efficient way to boost your retirement savings and reduce your tax. By redirecting part of your pre-tax salary into your super fund, you can benefit from lower tax rates, allowing more money to work for you in the long term. It’s an easy way to start saving for the future without feeling the pinch today, and over time, compounding returns will help your super grow.

8. Claim your government co-contribution

If you earn below a $60,400 a year and make a voluntary contribution to your super, the government may top up your super with a part co-contribution.

The maximum co-contribution is $500. To receive this maximum amount your income must be below $45,400 and you must contribute at least $1,000 as a personal after-tax contribution into super.

This is a great way to boost your super savings and is a government bonus, much like finding an unexpected gift under the tree.

To be eligible there are several other rules, so check if you qualify and take advantage of this opportunity to grow your retirement savings.

9. Explore spouse contributions

If your spouse earns less than $40,000 pa, you can contribute to their super fund and potentially claim a tax offset of up to $540. This is a great way to help boost their retirement savings and potentially reduce your taxable income in the process.

10. Plan for transition to retirement

If you’re nearing retirement, a transition-to-retirement (TTR) strategy could help you make the most of your savings and ease into retirement more comfortably. This strategy allows you to draw down some of your super while still working part-time, supplementing your income without fully retiring. It’s a way to boost your savings and ensure a smooth transition to retirement, making your golden years as stress-free as possible.

11. Review fees

Super funds charge various fees for managing your money, and these can add up over time, reducing your returns. It’s important to review the fees associated with your super to ensure you’re not overpaying. Much like trimming unnecessary expenses from your Christmas shopping list, minimising fees helps your super balance grow. Check if you’re getting good value for the services provided and whether switching to a more cost-effective option could be beneficial.

12. Seek professional advice

If you’re unsure about any aspect of your super, seeking advice from a financial adviser can be a great step. A financial adviser can provide tailored advice, helping you navigate decisions about your super, investments, and retirement planning. Think of them as your financial Santa’s helpers, ensuring your super journey stays on track and guiding you toward the best financial decisions for your future.

It’s always worth consulting an expert to maximise the benefits of your super and financial planning.

The last word …

By ticking off these 12 tips, you’ll be giving yourself the ultimate Christmas present: a brighter and more secure future. Merry Christmas and happy super planning!

 

That small farm dream… and tax deductions

Many professionals (and others) who retire – or who are on the verge of retiring – turn their minds to buying farmland and carrying out some sort of small-scale farming activities. And some are already right into it.

But there are some important tax considerations that should be borne in mind in any of those cases – the key one of which is the “non-commercial loss” rules that apply to limit or deny a deduction for losses from that activity.

Importantly, these rules only apply if you are carrying on a business of farming (or any business for that matter) – as opposed to merely “hobby” farming (or any hobby activity). If it is merely a hobby, then generally there are no tax consequences associated with the activity.

However, note that it is not always easy to determine the difference between hobby farming and farming as a business.

But if you are carrying on a farming business (or any business for that matter) the “non-commercial loss” rules will come into play.

And these rules provide that losses from a non-commercial business activity will be restricted from being offset against other income (such as other investment income, rent or salary and wages) unless that business activity satisfies one of the four “commerciality tests”.

Furthermore, if the rules apply, then the non-commercial loss is deferred and, in most cases, can only be offset against profits generated from the same activity in a later year. However, the non-commercial loss rules also do not apply for a farming business if income from other sources is less than $40,000.

So, what are these four “commerciality tests”?

Firstly, if the “income” generated from the business activity is $20,000 or more then the rules will not apply. This includes if it would be estimated that the income would be $20,000 where the activity is only carried on for part of the year. However, there are a lot of rules for how “income” is determined in this case.

Secondly, if the total value of real property used in carrying on the activity is at least $500,000 then again the rules will not apply. But, again, there are a lot of rules for calculating what the value of real property is for these purposes.

Thirdly, if the farming activity resulted in a “profit” in at least three of the past five income years then the rules will not apply.

But, again, there are many rules for how “profit” is determined in this case.

Finally, if the total value of other defined assets used in carrying on the activity is at least $100,000 the rules will not apply.

And just to complicate things, the ATO has a discretion not to apply the non-commercial loss rules if it would be “unreasonable” to do so because the business has been affected by events outside the taxpayer’s control (eg, by drought, flood, bushfire or some other natural disaster).

This discretion can also be exercised where the business is not expected to make a tax profit in the year, but there is an “objective expectation” that it will make a tax profit within some commercially viable period. However, the exact circumstances in which the ATO will exercise the discretion are also governed by various ATO rulings and policy guidelines.

In summary, most of the non-commercial loss rules are fairly straight forward in principle. However, as with any such matters, the devil is always in the detail – and there is a lot of detail attached to these rules.

So, we are here to help you navigate these rules if you are intending to take on a small farming business (or any other business) on your retirement – or if you intend to undertake any business at any time in your working life as the rules apply to any business activity at any stage it is undertaken.

 

How does your super compare with others your age?

Have you ever wondered how your super balance compares to others in your age group? Or maybe you’re curious about how much you should have saved by now to ensure a comfortable retirement? It’s not always easy to figure out if your super is on track, but understanding how it stacks up can help you make smarter decisions now that will benefit you later. This article looks into the average super balances for people of different ages and explores how much you may need in retirement.

 

Average balances of Australians

The Australian Taxation Office (ATO) has released data showing average super balances for different age groups. The data gives a helpful overview of where Australians are at in terms of their retirement savings. Here’s how the averages break down:

You might be looking at your super balance right now, feeling either satisfied or a little worried about how it measures up to these averages. Remember, averages don’t tell the whole story. Your balance can be impacted by various factors like career breaks, part-time work, salary levels, or investment decisions.

If you’ve made additional contributions or opted for higher-growth investment options, your balance may be above average. If it’s not quite where you’d like it to be, don’t worry – there’s still plenty of opportunity to take steps and get back on track.

How much super do you need in retirement?

Understanding what you’ll need in retirement can help you gauge whether your super balance is on track.

The Association of Superannuation Funds of Australia (ASFA) provides clear benchmarks to define what a “comfortable” or “modest” retirement might look like.

A modest retirement covers basic living expenses, with most of the income coming from the age pension. On the other hand, a comfortable retirement allows for a higher standard of living, including private health insurance, a reliable car, household upgrades, and leisure activities like holidays.

Here’s what ASFA estimates you’ll need if you retire at 65, own your home outright, and are in good health:

Knowing these benchmarks can help you assess your progress and plan for the future you want.

Are you on track?

Now that you know what the average super balance look like, and you have a better idea of how much you may need, it’s time to check where your super stands. If your balance is lower than the targets set by ASFA, don’t panic – it’s never too late to take action.

You can still take steps to boost your super and make it work harder for your retirement.

Consider making extra contributions, whether through salary sacrificing or personal after-tax payments.

Reviewing your investment strategy to ensure it aligns with your goals and risk tolerance is also important. If you’re unsure about what changes to make, it could be helpful to speak to a financial adviser who can offer tailored advice for your situation.

Super is an essential part of your retirement planning, and understanding where you stand can help you make smarter choices today. Whether you’re feeling confident about your balance or realising there’s more work to be done, it’s always worth taking the time to review and plan ahead. The sooner you act, the more time your super will have to grow – putting you in a better position to enjoy your golden years.

 

Click to view our Glance Consultants December 2024 Newsletter via PDF

 

 

 

Making contributions later in life

Superannuation laws have been simplified over recent years to allow older Australians more flexibility to top up their superannuation. Below is a summary of what you need to know when it comes to making superannuation contributions.

 

Adding to super

The two main types of contributions that can be made to superannuation are called concessional contributions and non-concessional contributions.

Concessional contributions are before-tax contributions and are generally taxed at 15% within your fund. This is the most common type of contribution individuals receive as it includes superannuation guarantee payments your employer makes into your fund on your behalf. Other types of concessional contributions include salary sacrifice contributions and tax-deductible personal contributions. The government sets limits on how much money you can add to your superannuation each year.

Currently, the annual concessional contribution cap is $30,000 in 2024/25.

Non-concessional contributions are voluntary contributions you can make from your after-tax dollars. For example, you may wish to make extra contributions using funds from your bank account or other savings. As such, non-concessional contributions are an after-tax contribution because you have already paid tax on these funds. Currently, the annual non-concessional contribution cap is $120,000 in 2024/25.

 

Super contribution options for people under 75

If you’re under 75, you can make and receive various types of contributions to your superannuation, such as:

■ Compulsory superannuation guarantee contributions
■ Salary sacrifice contributions
■ Personal non-concessional (after-tax) contributions
■ Contributions from your spouse
■ Downsizer contributions from selling your home
■ Personal tax-deductible contributions

 

Work test rule relaxed

After age 67, you’ll need to meet the “work test” or qualify for a “work-test exemption” to make personal tax-deductible contributions. To satisfy the work test, you must work at least 40 hours during a consecutive 30-day period each financial year.

Prior to 1 July 2022, the work test applied to most contributions made by individuals aged between 67 to 75, but now it only needs to be met for personal tax-deductible contributions. The good news is that you don’t need to meet the work test for other types of contributions, so being retired won’t stop you from contributing to superannuation.

So whether you are still working or retired, you can continue to make superannuation contributions to benefit you in retirement and beyond.

If you don’t meet the work test condition, you can use the “work test exemption” on a one-off basis if your total superannuation balance on the previous 30 June was less than $300,000 and you satisfied the work test requirements last financial year.

Meeting this requirement will allow you to also make personal tax-deductible contributions to superannuation.

 

Super contribution options for people over 75

Once you turn 75, most superannuation contributions are no longer allowed. The only exceptions are compulsory superannuation guarantee contributions from your employer (if you’re still working) and downsizer contributions from selling your home.

If you’re about to turn 75 or have just passed that milestone, you still have one final chance to make or receive other contributions. Superannuation funds can accept contributions for up to 28 days after the month you turn 75. For example, if you turn age 75 in October, the contribution must be received by your superannuation fund by 28 November.

 

Final word

Changes to the contribution rules now allow more flexibility for people in their 60s and 70s to add to their superannuation. So whether you are still working or retired, you can continue to make superannuation contributions to benefit you in retirement and beyond.

 

What is the right business structure?

If you carry on a business – small or large – the question of which business structure to use always arises – and not just from when you start that business, but also during its operation when it may be beneficial to change from one structure to another.

Essentially, there are four major ways in which you can carry on a business: as a sole trader, in partnership, or through a company or trust – or even a combination of these (eg, in a partnership of companies and/or trusts).

Moreover, each has their own particular advantages and disadvantages – particularly when it comes to taxation consequences (and the benefits thereof).

By way of a simple example, if you operate a business in partnership you have the legal problem of being “jointly and severally” liable for any debts of the partnership (ie, you can be personally liable for all the debts of the partnership even if they were “incurred” by the other partner).

On the other hand, there are not a lot of legal formalities to comply with (unlike a company) and, moreover, from a tax point of view you can generally split the income from the business with the other partner/s in the most tax advantaged manner.

Furthermore, and something that is often forgotten, any tax losses made by the partnership can be attributed to the partners – and can be used to reduce tax on their other income. This may be particularly useful in the early stage of a business when losses are more likely to be made.

This is unlike companies and trusts where the losses remain “locked” in the company or trust until such time that there is income against which they can be offset. And even then there are complex rules that prevent such losses being used in this way if, for example, there has not been underlying “continuity in ownership” of the company or trust.

On the other hand, family trusts at least do in effect allow flexible “splitting” of the income or profits made by the trust in a tax effective way. And companies and unit trusts also allow the same – but in a somewhat more rigid manner.

However, the key point we seek to make is that you can change the structure of your business at any time in its operation – and in regards tax, you can do so usually without any adverse tax consequences because of the various concessions and roll-overs that allow you to do so.

For example, if you have been running your business as a sole practitioner or in partnership you can roll-over your business (ie, the assets that comprise it) into a company or trust without there being any adverse tax consequences.

Of course, this is subject to meeting certain eligibility requirements – the main one of which is that you remain the beneficial owner of the business in that you remain the controller of the business in the same way you were before the “roll-over”.

And this is just at the simple end of this type of roll-over. In fact, the roll-over provisions now allow you to even roll-over a small business from whatever structure into a discretionary trust structure (with all its tax benefits). But again this is in effect subject to the same “continuity of beneficial ownership” existing both before and after the roll-over.

Finally, and crucially, even in the event you trigger a capital gain on restructuring a small business, the CGT small business concessions should apply to allow you to eliminate or greatly reduce the assessable gain – and to roll-over the gain into buying assets for a new business.

If you are running a small business, and think it is time to do things a bit differently (at least from a tax perspective!) come and see us to discuss all the options and all the advantages and disadvantages of a particular structure.

Likewise, if you are thinking of starting a business for the first time, come and speak to us to work out what type of structure would best suit you at the start of your entrepreneurial adventure.

 

Selling a property with mixed rental and residential use

Selling a property that may have been used for mixed rental and residence purposes has a lot of capital gain tax (CGT) issues – and some of these also involve exercising good judgment as to how to best use the relevant CGT concessions.

By way of example, if you retain your original home and rent it after you have purchased your new home, you will have to make a decision about whether you want to retain a full CGT exemption on the original home (or maximise it, at least) or whether you want the full exemption to apply to the new home. (But there are also ways that you can, in effect, have your cake and eat it too!)

On the other hand, where you rent a property first and then afterwards live in it, then various concessions that may help reduce your CGT liability may not be available.

Further, there are important CGT rules and concessions that apply to a home that has been used for such mixed use where the owner dies and then it is later sold by beneficiaries. These can be complex, but if applied with good planning can have (very) good outcomes.

And then, of course, there is the issue of how you actually calculate any partial capital gain (or loss) in respect of a property that has been used for both rental and as a residence in circumstances where it is not possible to get a full exemption on it.

And these calculation issues can involve determining whether you can use a market value cost at any time in the process and how you can account for any non-deductible mortgage interest (and other non-deductible costs).

There is also the issue of whether you need to write-off any amounts for which you have claimed a deduction (such as building write-off deductions). In this regard, there is also the issue of whether you have actually claimed write-off amounts and therefore whether you need to write the amounts back in in any way (and the result may surprise you).

And crucially, there is also the issue of whether any partial capital gain can qualify for the very generous 50% CGT discount. (And in this regard, interestingly the tax concession that costs the government the most in foregone revenue in most financial years is the CGT discount applying to a partial exemption on a home!)

Interestingly the tax concession that costs the government the most in foregone revenue in most financial years is the CGT discount applying to a partial exemption on a home!

Of course, there are a lot of planning issues surrounding a property that you purchase with mixed intentions of both wanting to live in it and rent it.

For example, if you live in it first on a genuine (bona-fide) basis then you can access a concession that allows you to retain its full CGT exemption for up to six years.

Furthermore, if you rent it for more than six years and have to calculate a partial CGT exemption you can usually get the benefit of a market value cost at the time you first rent it to calculate this partial gain.

As can be seen, there are an array of CGT issues surrounding the selling of a property used for mixed rental and residence use – including the need to determine how to best use (and choose) various concessions to minimise any potential CGT liability.

So, if you are in this position – or even thinking of buying a property that may be used for this mixed purpose – come and have a chat to us.

 

Comparing SMSFs with other super funds

While all superannuation funds have a shared goal to provide retirement benefits to their members, there are many differences between SMSFs and other superannuation funds. So if you’re thinking about setting up an SMSF, it’s worthwhile comparing SMSFs with other funds before making your decision. Here, we highlight the main differences between SMSFs and other funds.

 

The dangers of failing to declare income or lodge returns

There are many adverse consequences associated with failing to lodge income tax returns or omitting income from those returns if the ATO finds out.

The ATO has increasingly sophisticated technology to track such matters and catch people out – including “data matching” programs where it compulsorily obtains masses of information from certain authorities (eg, banks, insurance companies, real estate bond boards etc).

And on top of this, the ATO does not even have to actually look at the information too closely – as a computer program does this for the Commissioner.

So, it now seems that there is a bigger risk of being caught for failing to lodge returns or declare income (and for wrongly claimed deductions).

Moreover, if the ATO does catch you out for this and raises amended assessments or default assessments and you decide to challenge the assessments, then you may well face an uphill battle in doing so.

This is because in any matter before the tribunals or courts, the onus will be on you to not only prove that the assessments are wrong (ie, “excessive”), but also what the correct amount of taxable income should be.

And in many cases, this will be an almost insurmountable task – if only because you may no longer have the relevant records to prove your claim. (And for the record, there have been very few cases in recent, or less recent history, where a taxpayer has succeeded in this task.)

For example, in a recent case where the tribunal found that the ATO had been “careless” in the way it arrived at the amount of the alleged omitted income (even to the extent that it considered sending the assessments back to the ATO to redo), the tribunal still said it was “duty bound” to find that the taxpayer had failed in its onus of proving the assessment was excessive.

Furthermore, the Commissioner has the power to impose harsh penalties for failing to lodge returns or declare income – and again, the onus would be on you, the taxpayer, to show that the penalties are excessive and should be reduced or remitted.

Likewise, the ATO has the power to issue amended or default assessments many years after the income year in which they were due or income was omitted if it believes there has been “fraud or evasion” on your part – and, once again, the onus would be on you to prove otherwise!

So, the moral of this story is make an appointment with us to make sure you do not omit assessable income or fail to lodge a return – and, moreover, seek our advice to help tidy up any instances where you may have done so (unwittingly or otherwise).

 

 

Click to view the Glance Consultants October 2024 newsletter via PDF

 

 

 

 

 

 

 

Whether you’re a sole trader or you’re running a growing enterprise, handling your accounting responsibilities in an efficient way is going to:

• Save your business valuable time
• Reduce the amount of errors you notice
• Generally improve financial health

Take a look at some of the easiest ways that you’re able to enhance your accounting processes here in Australia:

 

Automate with Accounting Software

Whether it’s Xero, MYOB, or QuickBooks, investing in accounting software is generally one of the quickest ways you can make your business more organised. If you’re unfamiliar with how these work, put simply, they simplify all your invoicing, payroll, and tax reporting while keeping all your financial data in one place.

Now that you’re actually automating these tasks, you’re able to reduce manual data entry, and all of the possibilities of human error that come with that – helping you stay compliant with the ATO.

 

Regular Financial Reviews

Naturally, it always helps to conduct regular financial reviews so that you’re able to guarantee you stay on top of your financial performance (most people tend to do this on a monthly or even quarterly basis). 

Aside from this, staying aware of your current financial situation at any given time will definitely pay dividends during tax season or if you happen to be seeking a business loan.

 

Separate Business and Personal Finances

If you haven’t already separated your business and personal finances, definitely make this a priority if you’re looking to avoid confusion during tax season. Fortunately, it’s pretty easy to open a dedicated business bank account and credit card – giving you the opportunity to keep your financial records accurate as well as track expenses and calculate profits.

 

Stay ATO-Compliant

As you might expect, the Australian Taxation Office has some pretty strict requirements when it comes to record-keeping. So, in order to stay fully compliant with them, try to ensure that your business is adhering to these guidelines by maintaining accurate records of things like:

• Income
• Deductions
• GST obligations

Not only does this make it easier to manage your finances, but you’re, most crucially, avoiding the risk of penalties.

 

Partner with Glance Consultants

Still, without a solid financial background and a thorough understanding of all the ATO’s regulations and guidelines, it can be particularly difficult to stay compliant when it comes to tax filing. Fortunately, our team at Glance Consultants can help you out – we specialise in Australian tax regulations and can assist in:

• Managing tax obligations
• Implementing effective accounting systems
• Offering tailored advice on your business’s unique needs

Then, all that’s left for you is to focus on growing your business while we help ensure you’re staying financially sound.

Interested in hearing more about the range of accounting and bookkeeping services that we provide here at Glance Consultants? Don’t hesitate to get in touch with our team today for a chat.

 

Regardless of whether you’re running a big or small business, one of the requirements that stays the same is effective cash management – having a positive cash flow means that you’ll be able to:

• Cover your business expenses
• Invest in growth
• Weather any financial challenges you run into

Naturally, it’s easier said than done to simply ‘manage your cash flow properly,’ so we’ve put together a handful of tips to help you out:

 

Forecast Cash Flow

Put simply, this involves estimating what your incoming and outgoing cash is over a specific time period – which is usually monthly or quarterly. Start by taking a look at your business’s historical data and market trends so that you can make more informed predictions. Then, if you anticipate that you might run into some cash shortages, you’re able to take action early.

 

Monitor Cash Flow Regularly

If you’re reviewing your cash flow on a regular basis, you’ll be able to:

• Keep a closer eye on your financial health
• Quickly spot late payments
• Identify unexpected expenses

We’d recommend using accounting software like Xero or MYOB for this since they’re pretty useful when it comes to generating financial reports.

 

Manage Receivables Efficiently

To actually keep the cash coming in, it’s fairly crucial that you’re managing receivables in an efficient way. Whether you want to encourage clients to pay on time by offering early payment discounts or setting clearer payment terms, the choice is yours here. You could also think about using invoice financing or factoring so that you’re able to access funds before customers pay.

 

Control Expenses

It goes without saying that keeping your expenses in check is pretty important when it comes to having a healthy cash flow – make sure that you:

• Regularly review and subsequently cut any unnecessary costs
• Negotiate with your suppliers for better terms if possible
• Avoid over-investing in both inventory or equipment if you do not actually have a clear need for it

 

Access Financing

Generally speaking, you’re never going to be able to totally avoid coming into sporadic times of cash flow shortfalls, so having access to a business loan or general line of credit is going to be a lifesaver when you need a buffer to keep you ticking along.

Explore whether your business is able to apply for a government grant and research what other financial support is available to small businesses like yours – especially the ones that are offered by state or federal governments.

 

Working with Glance Consultants

Our team of chartered accountants here at Glance Consultants specialise in providing tailored financial advice for businesses across the country – contact us today to learn more about how we can:

• Analyse your cash flow
• Identify potential issues before they become problematic
• Develop strategies to optimise your finances

Looking for an easy software to manage your finances within Australia? With the right accounting tools, you’ll be able to:

• Streamline accounting tasks
• Handle your invoicing
• Manage payroll responsibilities
• Accurately report your taxes

Generally speaking, there’s quite a wide range of accounting software out there, but you’re going to need something that focuses specifically on Australian businesses:

 

Xero

Kicking things off, we have Xero, which is a cloud-based accounting software that’s primarily geared toward small and medium-sized businesses. Best of all, you’re getting seamless integration with Australian tax regulations with Xero, which makes it simple to manage:

• GST
• BAS
• Payrolls

Aside from this, you can access real-time financial data on Xero’s dashboard, and we like how it supports collaboration with accountants and bookkeepers, too.

 

MYOB (Mind Your Own Business)

MYOB is one of the few accounting tools out there that’s actually Australian-based – they’ve been serving for decades at this point, too. As you might expect, they’re great when it comes to how they cater to local compliance requirements, similarly offering plenty of features for things such as:

• GST
• Payroll
• Invoicing

For small businesses like yourself, you’ll want to use MYOB Essentials, but MYOB AccountRight is something you should be considering as your business grows as it provides more advanced features.

QuickBooks Online

Next up is QuickBooks Online, which is definitely one of the best tools on this list for anyone a bit less tech-savvy, as it comes with a particularly user-friendly interface. Expect to find plenty of features that aid with:

• Automatic GST tracking
• Easy BAS preparation
• Bank reconciliation 

QuickBooks is also ideal for anyone using a range of accounting software since it integrates well with other apps.

 

Reckon One

As with MYOB, Reckon One is another Australian-based tool that’s designed with both simplicity and affordability in mind. Interestingly enough, they also offer modules for core accounting tasks, whether that’s invoicing or expense tracking.

Best of all, though, it has a pricing model that only requires you to pay for the features that you actually need.

 

Zoho Books

Finally, Zoho Books is one of the most affordable options here, and it still provides a wide range of features. It supports GST compliance and integrates pretty well with Australian tax authorities, too, so this makes tax filing easy.

 

Partner with Expert Tax Consultants

The range of accounting tools available to small business owners nowadays is great, and it certainly beats old-school methods of using a spreadsheet or even handling your finances via pen and paper. 

That said, you’ll always be best off partnering with a company that actually has an expert understanding of accounting and tax regulations in Australia rather than relying solely on software – contact the team at Glance today to learn more about how we can aid your business.

 

The importance of “Tax Residency”

Whether you are a resident or non-resident of Australia for tax purposes has significant consequences for you.

Primarily, if you are a resident of Australia for tax purposes you will be liable for tax in Australia on income you derive from all sources – including of course from overseas (eg, an overseas bank account, rental property, an interest in a foreign business, etc).

On the other hand, if you are a non-resident of Australia for tax purposes, you will only be liable for tax on income that is sourced in Australia (including capital gains on certain property such as real estate in Australia).

And while there may be difficulty in determining the source of income in some cases, if you are a resident  for tax purposes, the principle of liability for tax in  Australia on income from all sources remains clear.

 

Resident of Australia for tax purposes  

So, what does it mean to be a resident of Australia for  tax purposes?  

Well, broadly, it means you “reside” in Australia (as  commonly understood), unless the Commissioner  is satisfied that your permanent place of abode is  outside Australia. 

However, a recent decision of the Federal Court has  shed some light on this matter – especially the often misunderstood presumption that “connections with  Australia” is all that counts. 

 

“Connections with Australia” 

The Federal Court case involved a mechanical  engineer who was posted to Dubai for a period of  six years, followed by a posting to Thailand, but who  had continuous family ties to Australia (in that he  financially supported his wife and daughters who  were living in Perth). 

Originally, the taxpayer was found to be a resident  of Australia for tax purposes essentially because of  his continuous ties to Australia and the fact that he did not establish personal ties overseas while he was living there (other than via his work commitments). 

However, the Court found that “connections with Australia” was not the key test but rather the key matter was where one intended to treat as home for the time being, but not necessarily forever, ie, not necessarily “permanently”. 

Likewise, it said that the matter of residency is worked  out on income year by income year basis (ie, one  particular year of income at a time) and it doesn’t  mean a person has to have the intention of living in  a particular location forever. 

Among other things, the case may have implications  for people who work overseas on a contract basis  for periods of time, but still maintain family ties to  Australia. 

It may also mean that closer scrutiny will have to be  paid to determine a person’s residency on a year by-year basis and not just “locking” them into a  residency or non-residency status from the beginning  of any relevant change in their circumstances. 

And of course, there is also the key issue of when in  fact your residency status may change! 

 

We are here to help 

Suffice to say, if you find yourself in any such  circumstances (eg, you undertake a foreign posting  for a period or you decide to move overseas for some  time but still maintain connections here), you will  need to speak to us about your residency status –  and the tax implications thereof.

 

Changes to preservation age

Since 1 July 2024, the age at which individuals can access their  superannuation increased to age 60.  So what does this mean for those planning on accessing their superannuation upon reaching this age? 

 

What is preservation age?  

Access to superannuation benefits is generally  restricted to members who have reached  “preservation age”, which is the minimum age at  which you can access your superannuation benefits.  

Prior to 1 July 2024, a person’s preservation age could  range from 55 to 60 as it depends on their date of  birth. Preservation age has been slowly increasing  over the years and has finally reached its legislated  maximum age limit of age 60, as shown in the table below:  

 

What does this change mean for me?  

Once you have reached preservation age, you may  receive your superannuation benefits as:  

■ A lump sum or as an income stream once you  have retired (or a combination of both), or 

■ A transition to retirement income stream while  you continue to work. 

Furthermore, once you turn age 60 your  superannuation benefits (ie, any lump sum  withdrawals and/or pension payments) will  generally be tax-free. 

This change simplifies the tax rules as previously  those between preservation age and age 60  were subject to tax on lump sum withdrawals  and pension payments. Now, the tax treatment  of superannuation benefits depends on whether  you are above or below age 60 – there is no need  to consider preservation age which is based on a  person’s date of birth.  

 

Need more information? 

If you’re wondering what your superannuation  withdrawal options are or how tax may apply  to your superannuation benefits, transition to retirement or superannuation income streams,  contact us today for a chat.

It’s important to note that preservation age is not the same as your Age Pension age. To get the Age Pension, you must be age 67 or over, depending on when you were born (and other rules you need to meet). So even if you reach preservation age, it could be some time before you are eligible to receive the Age Pension from Services Australia (ie, Centrelink).

CGT & foreign residents:  Complex rules apply! 

A person who is not a resident of Australia for tax purposes is nevertheless liable for capital  gains tax (CGT) on certain assets located in  Australia. And these assets are assets which have a  “fundamental” connection with Australia – and are  broadly as follows:  

■ real property (ie, land) located in Australia –  including leases over such land;  

■ certain interests in Australian “land rich” companies  or unit trusts; 

■ business assets used in carrying on a business in  Australia through a “permanent establishment”; and  

■ options or rights over such property. 

This means that such assets will be subject to CGT in  Australia regardless of the owner’s tax residency status.  

Importantly, in relation to real property, this also includes  a home that the foreign resident may have owned in  Australia. And this home will not be entitled to the CGT  exemption for a home if the owner is a foreign resident  when they sell or otherwise dispose of it.  

Furthermore, a purchaser of property from a foreign  resident will be subject to a “withholding tax”  requirement, whereby they have to remit a certain  percentage of the purchase price to the ATO as an  “advance payment” in respect of the foreign resident’s  CGT liability. However, this requirement is subject to  certain thresholds and variations. 

Importantly, a foreign resident will generally not  be entitled to the 50% CGT discount on any capital  gain that is liable to CGT in Australia – subject to an  adjustment for any periods when they owned the asset  when they were a resident of Australia. 

In relation to a foreign resident’s liability for CGT on  certain interests in Australian “land rich” companies or unit trusts, this rule broadly requires the foreign  resident to:  

■ own at least 10% of the interest in the company or  trust at the time of selling the interest (or at any time  in the prior two years); and 

■ at the time of sale, more than 50% of the assets  of the company or trust (by market value) are  attributable to land in Australia. 

This means that interest owned by foreign residents in  private companies and unit trusts can potentially be  caught by these rules.  

Moreover, the application of these rules can be very  difficult, particularly as a foreign resident can be  caught by them at certain times and not others. 

It is also worth noting that if someone ceases to be an  Australia resident and becomes a foreign resident for  tax purposes, then they will generally be deemed to  have sold such interests at that time and be liable for  CGT on them. However, this is subject to the right to opt  out of this deemed sale rule – but this “opt-out” has  other important CGT consequences. 

On the other hand, the rule that applies to make a  deceased person liable for CGT in their final tax return for assets that are bequeathed to a foreign resident  beneficiary does not apply to certain assets – and  these assets are any of the above assets with a “fundamental” connection with Australia.  

And this may be further complicated by the fact  that, for example, at the time of making the will, the  beneficiary may not have been a foreign resident. 

The application of Australia’s CGT rules to foreign  residents can be very complex – especially given the  “variable” nature of some of the rules. Therefore, it is vital  to speak to us if you have a “foreign residency” issue.

 

Selling a small business  operated through a company Sell the shares or sell the assets? 

If you run a small business through a company and you decide to sell it, you have  the choice of either selling the business assets themselves (together with any  goodwill) or selling your shares in the company. 

 

Access to the CGT small business concessions 

Usually, such decisions are made on the basis  of relevant commercial considerations (eg, due  diligence and future liability issues). 

However, if you are seeking to access the CGT small  business concessions on any sale, then you should  also consider whether it is better to sell the business  assets per se or the shares in the company. 

While in principle there should be no difference in  terms of the CGT outcome in selling either, it may  well be easier to access the concessions by adopting  one approach over the other. 

For example, if you sell the business assets at the  company level you will need to find one or more  controllers of the company (ie, broadly someone  with a 20% or more interest in it at the relevant time)  in order to be able to access the concessions. 

And, depending on the circumstances, this can be  both easier and harder than it looks. 

Furthermore, in the case of the “retirement  exemption”, it is necessary to actually pay any  exempted capital gain to this controller in order to  be able to use the concession (or to put it into their  superannuation if they are aged under 55 at the  relevant time). 

On the other hand, if you can use the “15 year  exemption”, it is enough that such a person exists –  without the need to pay the exempted gain to them. 

 

“Assets used in carrying on a business” 

Most importantly however, if you choose to sell the  shares in the company, the company itself must have  certain attributes – the most important of which is  that 80% or more of its assets (by market value) must  be assets used in carrying on a business.

This, in turn, raises the thorny issue of how money in  the bank is to be treated – and there is often a fine  line between whether it is considered to be used in  carrying on a business or not. 

 

More hurdles to jump for eligibility 

Furthermore, if the company has “controlling  interests” in any other entity, then the assets of any  such entity also must be also taken into account in  determining if this test is met. 

And, of course, as with the application of the CGT  small business concessions in any circumstances,  the “taxpayer’’ must satisfy either the $2m turnover  test or the $6m maximum net asset value (MNAV)  test. 

And where shares or units are sold, the “taxpayer’’  is the individual who owns the shares and where  the business assets are sold the “taxpayer” is the  company or trust itself. 

In either case, the tests can be difficult to apply  because the “taxpayer’’ includes affiliates and  connected entities (ie, related parties).  

By way of example, if you sell the business assets of  a company and you use the $6m MNAV test, then any person who has a 40% or more shareholding  in the company will be a connected entity and  their assets (other than personal ones such as  superannuation and their home) will also have to  be taken into account. Importantly, this can include  investment properties and shares. 

And then there is the difficult task of determining  what liabilities relate to those assets for the  purposes of this test – especially where the business  assets are sold. 

Suffice to say, the issues surrounding the question  of whether you should sell the business assets of  a company or the shares in them when seeking  to apply the CGT small business concessions are  complex.  

Furthermore, the same issues arise in respect of  deciding whether to sell the units in a unit trust  that operates a small business or the assets of the  business itself. 

 

We are here to help 

In any of these scenarios we are here to help – as  this is a matter which clearly requires the expertise of a tax professional.

Spouse contributions splitting

Splitting superannuation contributions to your spouse can be a great way to boost your  combined superannuation balances which can  benefit you both in retirement.  

 

What is contribution splitting?  

Spouse contribution splitting allows a couple to  optimise their superannuation balances by splitting  up to 85% of concessional contributions (CCs) they  made or received in one financial year (ie, 2023/24)  into their spouse’s account the next financial year  (ie, 2024/25).  

Remember, CCs are before-tax contributions and  are generally taxed at 15% within your fund. This is  the most common type of contribution individuals  receive as it includes superannuation guarantee  (SG) payments your employer makes into your fund  on your behalf. Other types of CCs include salary  sacrifice contributions and tax-deductible personal  contributions. 

The maximum amount that can be split to your  spouse is the lesser of:  

■ 85% of CCs made in the previous financial year  (ie, 2023/24), and  

■ The CC cap for that financial year (ie, $27,500 in  2023/24).  

 

EXAMPLE 

Alex and Kat are parents to three young children. Kat  has taken time off work to care for their children and  has much less superannuation than Alex.  

After speaking to their financial adviser, they decide to  split the $20,000 in SG contributions that Alex received  from his employer last financial year (2023/24). In  August 2024, Alex applies to his superannuation fund  to transfer as much of his CCs as he can to Kat. 

Alex is able to split 85% of his CCs which provides a  much-needed boost of $17,000 to Kat’s retirement  savings. 

 

Rules for the receiving spouse  

An individual can apply to split their CCs at any age, but the receiving spouse must be either:  

■ Under preservation age (currently age 60 if born  on 1 July 1964 or later), or  

■ Aged between their preservation age and 65 years,  and not retired at the time of the split request.  

In other words, if the receiving spouse has reached  their preservation age and is retired, or they are 65  years and over, the application to split your CCs will  be invalid. 

 

Benefits of contribution splitting 

Contribution splitting is an effective way of building  superannuation for your spouse and can manage  your total superannuation balance (TSB) which can  have several advantages, including: 

■ Equalising your superannuation balances to  make best use of both of your “transfer balance  caps” (TBC) which can maximise the amount you  both have invested in tax-free retirement phase  pensions. Note, the TBC limits the amount that a  person can transfer to retirement phase pensions  in their lifetime – this limit is currently $1.9 million  in 2024/25.  

■ Optimising both of your TSBs to:  

■  Access a higher non-concessional (after-tax)  contribution cap (as the amount you can  contribute to superannuation depends on  your TSB) 

■  Access the carry-forward CC rules and make  larger CCs (note, the option to utilise these  rules is restricted to those with a TSB below  $500,000 on the prior 30 June) 

■  Qualify for a government co-contribution  

■  Qualify for a tax offset for spouse contributions  

■ Boosting your Centrelink entitlements by  transferring funds into a younger spouse’s  accumulation account if your spouse is under Age  Pension age. 

 

Last word 

As always, there are eligibility requirements that  must be met and deciding what is best for you will  depend on your personal circumstances. For this  reason, you may want to seek personal financial  advice to determine whether contribution splitting is  right for you and your spouse.

 

Breaking up (by text) is hard to do

A recent decision by the Full Federal Court around a man’s tragic death by suicide clarified the standing of a defacto spouse in the context of a non-lapsing death benefit nomination on a life insurance policy made by the deceased person.

Just prior to C’s death in September 2019 the death benefit under his insurance policy was  valued at $1.1 million, with the death benefit  nomination in favour of his de facto spouse, N,  having been made in December 2018. 

On the night of his death, C sent a text message to  his sister, purporting to be his last will and testament  and indicating his wish that all his assets should  pass to his family, with N receiving nothing. The text  was not copied to N and it was later established  that it was sent while C was under the influence of cocaine and alcohol.

The trustee of the policy took the view that the defacto relationship had continued right up to the time of C’s death and that N was therefore entitled to the death benefit. This decision was challenged by C’s family before the Australian Financial Complaints Authority (AFCA), arguing the text was evidence that the relationship between C and N had ended before C’s death.

However, AFCA decided that relationships have their ups and downs and people say and write a lot of things they don’t mean all the time. This meant the trustee was right, the relationship remained ongoing just prior to C’s death and N was entitled to receive the death benefit.

The family then appealed to the Federal Court, where a single judge ruled that AFCA had erred in law in not construing the text message as proof that C’s relationship with N had come to an end, meaning that N was not a valid beneficiary after all.

Finally (one would think), N appealed to the Full Federal Court, which held unanimously that in the absence of communication from C to N, there needed to be some other course of conduct, such as a refusal to cohabitate, which would clearly be inconsistent with a continuation of the relationship.

Since there was no evidence about such conduct, the Full Court ruled in favour of N. The decision by AFCA was therefore upheld.

This case, with its own peculiar facts, highlights the importance of keeping things like binding death benefits nominations up to date and being clear about spousal relationships, especially when couples live apart.

 

Small business energy incentive

A little-known tax incentive that is aimed at encouraging businesses to improve energy efficiency is the small business energy incentive (SBEI).

You will have to jump through a few hoops to qualify, but depending on what sort of  depreciating assets you have acquired between 1 July 2023 and 30 June 2024 (the bonus  period), you may be entitled to a bonus deduction  of 20% of the cost of acquiring up to $100,000 of  eligible equipment. This is over and above what  you would ordinarily claim, so it’s bit like the old  investment allowance, but with a $20,000 cap. That’s  up to $9,400 extra in your pocket, which may make it  worth a look.  

The SBEI is available to businesses with an annual  turnover of less than $50 million, where they have  invested in certain eligible depreciating assets  during the bonus period and where one or more of  the following apply: 

■ there is a new reasonably comparable asset that  uses fossil fuel available in the market; 

■ the new asset is more energy efficient than the  one it is replacing; 

■ if not a replacement asset, it is more energy  efficient than a new reasonably comparable  asset available in the market. 

An asset can also be eligible if it is an energy storage,  time-shifting or monitoring asset, or an asset that  improves the energy efficiency of another asset. 

The bonus deduction is available on second hand  assets, although the comparable asset must be  available in the market as new. 

It only applies to businesses, so replacing gas  appliances with electric ones in a rental property  would not qualify. The bonus deduction does not  apply to solar panels or motor vehicles.

If you think you may have a claim, please feel free to contact us.

 

Click here to view our Glance Consultants August newsletter via PDF

 

 

 

 

 

As an employer, you are responsible for protecting your employees from work-related injuries. You must familiarise yourself with your duties and obligations if an employee gets injured on the job. WorkCover helps businesses provide that fundamental safety net should anything happen at work. In this guide, we’ll outline your WorkCover obligations as an employer in Victoria.

 

WorkCover in Victoria

WorkCover insurance, regulated by WorkSafe Victoria, covers your business and your employees in the case of work-related injuries. This includes workers’ compensation to cover wages and benefits while employees cannot work due to medical reasons.

In Victoria, you are required to register for WorkCover insurance if your business employs workers. However, there are exemptions to this. WorkCover is not obligatory for companies that pay remuneration lower than $7,500 in a financial year. Sole traders and companies who perform all the contract work for a single client are also exempt from WorkCover.

You will pay insurance fees and premiums based on your business operations and industry. Some companies, like construction and manufacturing enterprises, may pay more due to their industries’ safety history. As a Victoria-based employer, you are required to know your insurance premiums and parameters.

 

What are My WorkCover Obligations as an Employer?

You are required to fulfil several WorkCover obligations if you run a business in Victoria. As an employer, you must:

• Register for WorkCover insurance (unless you are exempt).
• Create a safe work environment to the best of their abilities.
• Notify WorkSafe whenever you change your business operations or premises.
• Display notices in the workplace on how to make a claim.
• Make available a register of employee workplace injury history.
• Ensure all details regarding employee payments, wages, and benefits are up to date.
• Pay insurance premiums by the correct deadlines.
• Determine whether you are covered by your WorkCover insurance before employing contractors.

If you do not perform these duties, you will be asked to pay fines or accept further penalties.

 

Stay on Track with Expert Tax Consultants

You may take every possible measure to prevent workplace injuries to your employees, but accidents can still happen. That’s why it’s important to know your legal obligations as an employer in Victoria.

Glance Consultants can help you keep track of your WorkCover obligations. We provide expert accounting services to ensure you handle workplace injuries with respect, dignity, and full legal compliance. Contact us today to learn more about your WorkCover obligations in Victoria.

 

Australia offers many great opportunities for property development. But when constructing new buildings, whether for residential or commercial purposes, you must file the right tax returns to ensure you can budget effectively and operate legally.

There are several tax implications on property development projects. In this guide, we’ll outline the key tax rules that could affect your new build and whether you need to register them in your tax return.

 

Income Tax

The first tax implication to consider is income tax. You must pay income tax if you are generating income from your development projects, such as through rental properties or capital gains. For any properties that you own as trading stock, you will be charged your marginal income tax rate.

 

Goods & Services Tax (GST)

GST is a common tax implication for property development projects. You must factor it into your budget and plan these costs accordingly. You will be liable for GST if:

• You build new residential properties for sale.
• The revenue from your property transactions exceeds the GST registration limit.
• You are considered an enterprise with regards to your property development activities.

You can claim GST credits for building costs related to the sale of your new properties. If you’re selling existing residential properties, you won’t be required to pay GST.

 

Capital Gains Tax (CGT)

You may be required to pay CGT on the profits you earn when you sell your developed properties. The total tax cost will depend on the property purchase price, its final sale price, and any eligible expenses that can be deducted.

 

Stamp Duty

Stamp duty, also known as transfer duty, is applicable when you acquire land for property development purposes. Tax rates and rules vary between states, so make sure you familiarise yourself with your region’s transfer duty regulations before buying property. For example, Victoria abolished the transfer duty for commercial premises in their 2023-24 State Budget, replacing it with an annual property tax.

 

Land Tax

If you own land as part of a property development project, you may be required to pay land tax. This is a simple charge that is taken annually from landowners across Australia, but the rates and exemptions vary between states. 

 

Seek Professional Tax Guidance Before You Build

Property development projects require substantial effort. Make sure you are fully aware of every potential tax implication before you begin, otherwise you could quickly find yourself over budget.

Hiring expert tax consultants will ensure you budget appropriately and submit your tax returns correctly. You’ll be able to build legally and transparently while claiming the right deductions. Get in touch with our team at Glance Consultants today for professional tax advice on property development projects.

You are entitled to tax deductions if you are renting out a property you own. However, many rental property owners file incorrect tax returns, as they are unaware of their landlord responsibilities and which costs they can claim. The major error most people make relates to property repairs and renovations.

In this guide, we outline the differences between repairs and capital improvements in the eyes of the Australian Tax Authority (ATO). Learn the definitions of each and how you can claim the right deductions come tax-filing season.

 

What are the Differences Between Repairs and Capital Improvements?

Repairs and capital improvements are not the same. When it comes to filing your tax return, it’s important you know the difference:

• Repairs: According to ATO guidelines, repairs include any work done to fix damage to your property that occurs as part of renting it out. Repairs are necessary to restore your property to how it was before the damage occurred and can be claimed as part of your end-of-year tax deductions.
• Capital Improvements: Capital works or improvements concern structural work that enhances your property for future tenants. This goes beyond simple repairs and maintenance and can include works such as roof replacements, extensions, and garden renovations.

 

Tax Rules for Claiming Deductions

There are different rules regarding how to claim expenses for rental property repairs vs. capital improvements:

• Repairs: The ATO rental expense rules state that you can only claim tax deductions for repairs and maintenance if your property is continually rented out or remains genuinely available to rent. Any claims for property repairs must be made in the financial year when you incurred the costs.
• Capital Improvements: You cannot claim capital improvements on your rental property as deductions in the same tax year. Instead, capital works must be claimed at 2.5% over 40 years only after the improvements have been completed. You can also claim capital works as depreciable assets.

 

Claiming Deductions on Initial Repairs

You may find that repairs are needed when you first buy a property. These are known as initial repairs and cannot be claimed as a tax deduction. Any defects or breakages that existed when you acquired the property are counted as capital repairs and form part of the acquisition cost.

 

Hire Experienced Tax Advisors to Claim the Right Property Deductions

There’s no point in second-guessing your tax return. If even a small part of you is unsure whether you can claim deductions for your rental property repairs and capital improvements, it’s worth hiring a specialist.

 

Don’t risk falling behind on your taxes or overpaying your fair share. At Glance Consultants, our team of trained chartered accountants can take care of your rental property taxes, helping you claim the right deductions and pay the correct tax obligations. Contact us today to optimise your tax payments.

 

We appreciate how complicated it can be when you’re trying to stay compliant with all of the ATO’s regulations, but you can also still be utilising various deductions and other tax benefits while doing this. You need to follow a plan when doing your tax returns as a business, so make sure you’re following this guide to give you a hand.

Maximise Deductions and Concessions

If it’s possible, you need to be utilising every possible deduction and concession that you’ve got available to you – the instant asset write-off, for instance, is something you should be looking into so you can immediately deduct the cost of certain assets. 

Aside from this, if you’re working remotely, you’ll also be able to make a few deductions on any of your home office expenses – just make sure you’ve kept proper documentation so you can substantiate some of these deductions.

Why Should I Plan for My Super?

If you want to avoid certain penalties, it’s paramount that you’re making timely contributions to your super – remember, these contributions (up to the concessional cap) are actually tax-deductible, so you’ll ultimately be reducing your taxable income by doing this.

The Difference Cash Flow Management Can Make

If your business records are fully accurate and you’re always on time with lodging your Business Activity Statements (BAS), you’ll be able to avoid some of the late fees and interest charges that stack up otherwise – we’d suggest using an accounting software to give you a hand with this.

What’s R&D?

We’d recommend looking into the tax incentive you get for any research of development your company does, as this’ll massively lower your taxable income – again, just make sure you’ve got detailed records of this.

Review and Adjust Your Tax Strategy Annually

You’re always going to need to make adjustments to your tax plans as your business continues to grow, so we’d recommend scheduling annual tax reviews with us in order to check how your current strategy is performing.

Understand the Latest Tax Legislation

The ATO is always updating their tax laws, so make sure you contact us to help figure out if there are any new tax incentives or deductions you could be taking advantage of.

Utilise Tax-Effective Business Structures

Every kind of business structure has distinct tax implications, whether you operate as a: 

• Sole trader
• Partnership
• Company
• Or a trust

So that you’re utilising the most tax-efficient structure for your business, don’t hesitate to get in touch with our team of tax professionals! We’ll help you determine what the best kind of structure is to get the most out of your taxes, along with a host of other services like bookkeeping and business advisory – get in touch today.