Category: Accountants

 

Managing substantial wealth and assets in Australia comes with the responsibility of effective tax planning. High-net-worth individuals often face significant tax liabilities, making it imperative to navigate the complexities of the Australian tax system while remaining fully compliant with the law. In this article, we will discuss four essential tax planning strategies tailored for individuals seeking to minimize their tax liabilities while staying within legal boundaries.

 

Utilize Self-Managed Superannuation Funds (SMSFs):

A self-managed super fund (SMSF) can be a powerful investment vehicle for high net worth individuals seeking greater control over their retirement investments. To establish an SMSF, individuals must establish a trust deed and register their SMSF with the Australian Taxation Office (ATO). Unlike traditional superannuation funds, SMSFs empower you and up to five other members to oversee your investment decisions, potentially reducing administrative and investment fees.

One of the key advantages of SMSFs is the ability to diversify investments across various asset classes, including shares, cash, fine art, foreign shares, managed funds, and property. SMSFs also offer favorable tax benefits, with a standard tax rate of 15% or lower, provided all compliance requirements are met. Investments made within an SMSF, such as property and equipment, can result in reduced tax liabilities.

It is crucial to note that establishing and managing an SMSF can be complex. Seeking professional business advisory support is highly recommended to ensure full compliance with current legislation.

Even if you did not have an SMSF, you can potentially maximise your deductible superannuation contributions for the year and claim such contributions as a tax deduction. Various factors need to be considered prior to making such contributions and tax planning is essential.

 

Engage in Negatively Geared Investments:

Negative gearing is a strategy where individuals borrow money to invest in assets, such as property, with the goal of generating long-term wealth through asset appreciation rather than immediate returns. In this approach, the total deductible costs, including interest costs, depreciation and property maintenance costs, exceed the rental income received.

The tax advantage of negative gearing lies in the fact that it can lower your assessable income. The Australian Taxation Office (ATO) taxes individuals on the reduced income after deducting expenses, which can lead to reduced tax liabilities.

 

Implement Debt Recycling:

Debt recycling is a more advanced strategy that involves repaying one debt (e.g., a student or mortgage loan) by investing funds obtained from the equity of another loaned asset. While this strategy carries higher risk, meticulous execution can unlock substantial equity for further investments.

By investing equity from an existing asset, such as your home or a vehicle, into income-producing assets like rental properties, you can reduce your tax liability. Interest incurred on the loan taken against your equity to invest in an income bearing asset can be deductible, further lowering your overall assessable income.

 

Explore Shares for Franking Credits:

Investing in shares of companies that pay taxes on their profits can provide access to franking credits with dividend distributions. Franking credits can assist in in reducing your overall tax liability as you will be required to only pay the differential tax between your marginal tax rate and the company tax rate.

In some instances, accumulating franking credits through diversified investments may even lead to an overpayment of tax, potentially resulting in a tax refund.

Effective tax planning is essential for high net worth individuals in Australia to minimize tax liabilities while adhering to legal requirements. These tax planning strategies, when employed carefully, can significantly reduce tax burdens and enhance wealth accumulation. However, due to the complexities involved, it is strongly advised to seek professional guidance and personalized tax planning services to maximize tax savings and ensure compliance with current tax laws. To get started on optimizing your tax strategy, please contact us for our tailored individual taxation services, offering expert advice, meticulous planning, and preparation of tax lodgments that consider your unique financial situation.

 

Who can I nominate as my super beneficiary?

Your superannuation death benefits must be paid to someone when you die. That somebody will usually be your estate or your nominated beneficiary (also known as your dependants).

Paying death benefits to your estate

Unlike other assets such as shares and property, your superannuation and any insurance benefits you have in superannuation do not form part of your estate.

That’s because your superannuation is not held by you personally, rather it is held in trust for you by the trustee of your superannuation fund.

However, you can direct your superannuation death benefit to your estate by nominating your ‘legal personal representative’ (LPR), who will usually be the executor of your estate. If you nominate your estate or LPR, you must also specify in your Will who you want to distribute your superannuation money to.

This can include eligible beneficiaries (see below) as well as anyone else you wish to leave your death benefits to.

As such, it’s important that the directions stated in your Will are up to date so your LPR pays out your death benefits (as well as your other estate assets) as per your wishes.

Paying death benefits to a beneficiary/dependant

If you want your superannuation death benefits to be paid to a person, that person must be a ‘dependant’ for super purposes.

The meaning of dependant is important as it determines who can receive a death benefit, whether the death benefit will be taxed and in what form your death benefit can be paid out (ie, lump sum, income stream, etc).

In particular, superannuation law determines who can receive your super directly from your super fund without having to go through your estate. These people are your superannuation dependants.

Tax law on the other hand determines who pays tax on your superannuation death benefit.

These people are considered tax dependants.

The table below summarises the difference between:

■ a superannuation dependant and tax law dependant, and
■ the types of death benefit that can be paid to each category of dependants.

As can be seen, the key differences between the superannuation and tax dependant definitions are:

■ a tax dependant does not include an adult child (whereas a super dependant does), and
■ a tax dependant includes a former spouse (whereas a super dependant does not).

Although your financially- independent adult children are your superannuation dependants and can receive a death benefit directly from your superannuation fund, they are not tax dependants. This means they will not receive more favourable tax treatment than a tax dependant would receive unless they qualify under an ‘interdependency relationship’ or are financially dependent on you.

A tax dependant will generally not pay any tax on superannuation death benefits. In contrast, a non-tax dependant is taxed on any taxable components of a superannuation death benefit.

This could be up to 15% tax plus Medicare levy on any taxable component and potentially up to 30% plus Medicare levy for any taxable untaxed elements within your fund.

Need help?

Please contact us if you would like further information about who you can nominate to receive your superannuation death benefits.

Definition of a dependant 

 

Who is a resident for tax purposes?

A person’s residency for tax purposes can be one of the most difficult issues to determine in Australian tax law. And it is not just a question of whether a person is a ‘citizen’ of Australia.

Moreover, it is highly relevant from a tax point of view, as a person who is a resident of Australia for tax purposes is liable for tax in Australia on their income from ‘all sources’ (ie, both from Australia and overseas) – including capital gains. On the other hand, a person who is not a resident of Australia for tax purposes is only liable for tax in Australia on income and capital gains that are considered ‘sourced’ in Australia.

A recent decision of the Administrative Appeals Tribunal (AAT) illustrates some of the issues involved in determining this complex matter (see PQBZ v FCT [2023] AATA 2984). In that case, the AAT found that the taxpayer was a resident of Australia for tax purposes under the ‘ordinarily resides’ test or principle – without having to consider the ‘subsidiary’ tests which involve, for example, questions of the person’s ‘domicile’ and whether they intended to take up residency in Australia. Significant to the AAT’s decision was that, apart from his business interests in an overseas country and the unit he lived in there to carry on that business, all of the taxpayer’s personal (and other) ‘connections’ were otherwise clearly with Australia.

These Australian connections included his family home, his personal and other business assets, where his wife and children lived, Australian bank accounts and his Australian health insurance.

It was also relevant that for the several years in question, the majority of the time he had spent living in Australia.

As a result the taxpayer, as a resident of Australia for tax purposes, was liable to tax in Australia on his overseas business income.

But not all residency issues are apparently as clear-cut as this.

In other cases, it is necessary to consider issues such as whether the taxpayer has been in Australia for half the income year or more and whether they intend to take up residency in Australia.

It may also be necessary to consider the complexities of any ‘double tax agreement’ with the country in question.

And suffice to say, if the issue is relevant to you, not only is the advice of your professional adviser invaluable, it is also essential.

 

When two bonuses are not enough … Introducing the Energy Incentive!

If you’ve been putting off upgrading the inefficient office air-conditioner, a new 20% bonus deduction might just be the incentive you need to help beat the heat before it arrives with a vengeance!

Whilst the small business Technology Investment Boost has now ceased1, not only can you still take advantage of the Skills and Training Boost (generally for expenditure on training employees incurred before 30 June 2024), but there is also now a new kid in town – the small business Energy Incentive!

Similar in design to the earlier ‘boosts’, the proposed Energy Incentive provides a bonus tax deduction of 20% of expenditure on improving the energy efficiency of your business. Up to $100,000 of expenditure can be eligible for the incentive, with the maximum bonus tax deduction being $20,000 for the 2023-2024 tax year.

What type of expenses are eligible for the bonus? Where you can show improved energy efficiency, expenditure on electrifying heating and cooling systems, upgrading appliances such as fridges and cooktops, and installing batteries, heat pumps and off peak electricity monitors can all be eligible. (As always, there are some exclusions, such as expenditure on motor vehicles, building improvements and financing expenses.)

Although this proposed Energy Incentive is not yet law, it is an opportune time to consider whether your business may want to take advantage of the bonus and undertake the preparation and ‘leg work’ needed to ensure you can maximise the bonus.

If you’re interested in finding out more about either the Skills and Training Boost or the proposed new Energy Incentive, feel free to reach out to us and we can provide the information and guidance needed to make sure your business gets the most out of both incentives (before they end on 30 June 2024!).

 

Qualifying as an interdependent or financial dependant

A question that often gets asked when dealing with death benefit nominations is whether a person will qualify under the interdependency or financial dependency definitions. This is an important consideration as meeting the dependency criteria will enable potential beneficiaries to qualify as a dependant and therefore allow them to receive a death benefit.

INTERDEPENDENCY RELATIONSHIP

Put simply, an interdependency relationship exists between two people if all of the following conditions are met:

1. They have a close personal relationship
2. They live together
3. One or both provides the other with financial support
4. One or both provides the other with domestic support and personal care.

However, if two people satisfy the close personal relationship requirement but cannot satisfy the other three requirements, they can still satisfy the interdependency relationship if:

■ Either or both of them suffer from a physical, intellectual or psychiatric disability, or
■ They are temporarily living apart (eg, overseas or in jail).

There is no easy way in determining whether an interdependent relationship exists, however superannuation law provides the following list of considerations to help superannuation fund trustees determine if an interdependency relationship exists (or existed before one of the parties died):

■ Duration of relationship
■ Whether or not a sexual relationship exists
■ Ownership, use and acquisition of property
■ Degree of mutual commitment to a shared life
■ Care and support of children
■ Reputation and public aspects of the relationship
■ Degree of emotional support
■ Extent to which the relationship is one of mere convenience
■ Any evidence suggesting that the parties intend the relationship to be permanent
■ A statutory declaration signed by one of the persons to the effect that the person is or was in an interdependency relationship with the other person.

It is not necessary that each of these factors exists in order for an interdependency relationship to exist.

Instead, each factor is to be given the appropriate weighting depending on the circumstances.

FINANCIAL DEPENDANT

If a beneficiary fails to meet the interdependency relationship criteria, they may qualify as a financial dependant. Being financially dependent on the deceased generally means you relied on them for necessary financial support. This also applies to children over 18 years old as they must be financially dependent on the deceased to be considered a financial dependant.

That said, the term financial dependant is not expressly defined in superannuation or tax legislation, so it takes on the ordinary meaning of that term. As such, the definition of financial dependant is reliant on case law and comes down to the facts of each case.

In most cases, it is not the value of payments received from the member that establishes financial dependency but the degree of dependency on that payment. This includes the extent the person relies on the financial support provided by another person to meet basic living expenses.

For example, a grandparent who chooses to pay school fees for their grandchild is unlikely to have their grandchild qualify as a financial dependant.

This is mainly due to the fact that the payment is seen to be more discretionary in nature than providing for an essential element of life, such as food or shelter.

In summary, superannuation case law provides more flexibility for someone to be partially or wholly dependent, whereas tax dependency takes a stricter approach as a substantial degree of dependency is required.

CONTACT US

The conditions for the existence of an interdependency and financial dependency relationship under the law can be complex. If you require further information on this topic, please contact us for a chat.

TIP

If you are uncertain whether an interdependency relationship exists (ie, where adult siblings have been living together, or where an adult child has been living with their parents), you can always request a private ruling from the Australian Taxation Office as the definition for interdependency is the same under both superannuation and tax law.

 

How to nominate a superannuation beneficiary

There are many types of nominations offered by different funds. Knowing which one suits your circumstances is key to ensure your superannuation ends up in the right hands.

Types of nominations

Individuals can direct or influence their superannuation fund trustee as to how they want their death benefits distributed by completing a death benefit nomination form.

Superannuation funds offer a range of death benefit nominations, including:

■ Non-binding death benefit nominations
■ Binding death benefit nominations
■ Non-lapsing binding nominations
■ Reversionary pension nominations, and
■ In the case of an SMSF, executing a trust deed amendment or using one of the above types of nominations.

However not all funds will provide all options to their members, and completion of these forms is best done by the member in conjunction with their adviser and an estate planning lawyer in the first instance.

Non-binding death benefit nomination

This is the most common type of death benefit nomination and is offered by most superannuation funds. A non-binding nomination is an expression of wishes which is not binding on trustees. The trustee of your superannuation fund will look at the nomination you make, but will exercise discretion to determine which of your beneficiaries receives your superannuation and in what proportions.

Binding death benefit nomination

A binding death benefit nomination is a written direction from a member to their superannuation trustee setting out how they wish some or all of their superannuation death benefits to be distributed. The nomination is generally valid for a maximum of three years and lapses if it is not renewed.

If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Non-lapsing binding death benefit nomination

This is a written direction by a member to their superannuation trustee establishing how they wish some or all of their superannuation death benefits to be distributed. These nominations generally remain in place forever unless you cancel or replace it with a new nomination. If this nomination is valid at the time of your death, the trustee is bound by law to follow it.

Reversionary pension nomination

If you are in receipt of an income stream, you can nominate a beneficiary (usually your spouse) to whom the payments automatically revert upon your death. With this type of death benefit nomination, the fund trustee is required to continue paying the superannuation pension to your beneficiary if your benefit nomination is valid.

SMSFs and death benefit nominations

If you are an SMSF member and want to make a death benefit nomination, it is important to review your fund’s trust deed requirements to determine the rules regarding death benefit nominations. Although the High Court recently ruled in the case of Hill v Zuda Pty Ltd [2022] that traditional three-year lapsing binding death benefit nominations do not apply to SMSFs, many trust deeds expressly include the traditional requirements. If this is the case, they must be complied with, and the nomination will lapse.

What if there is no nomination or an invalid nomination?

If you have not made a nomination, your superannuation fund will have rules for determining the death benefit recipient(s). In many cases, funds will either exercise discretion and follow the same process as if a member had a non-binding nomination, or pay your benefit to your legal personal representative (LPR). The risk with this option is if you don’t have a Will, your benefit may be distributed under the relevant state laws for dealing with intestacy!

Similarly, if your nominated beneficiary does not meet the definition of a superannuation law dependant at the time of your death, the nomination will be deemed invalid. Again, it will come down to your fund’s rules which may determine that your benefit must be paid to your LPR or alternatively that the trustee exercise their discretion.

Check your nomination

Remember to regularly review your superannuation death benefit nominations when your circumstances change to ensure it remains up to date and ends up in the hands of the right person(s).

 

Click here to view Glance Consultants November 2023 newsletter via PDF

 

 

 

 

 

 

 

 

 

 

In a post-pandemic landscape, over 2 million Australians work from home (WFH) at least once weekly. Although this work environment offers greater flexibility and improves individuals’ work-life balance, workers incur the additional electricity, internet, and home office equipment costs.

So, how do you calculate these deductions?

Keep reading for further details of the WFH deduction method that works best for you.

 

Which Work-From-Home Deductions Apply?

The ATO permits deductions for the following costs:

• Mobile data and internet charges
• Electricity and gas bills
• Stationary and computer consumables (like ink and paper)
• Mobile and landline costs
• Cleaning in dedicated offices only

Depreciating assets, like computers and specialist equipment, are deductible, too. You’d claim the declining value over time.

You could receive an immediate deduction if an asset costs $300 or less. The ATO also includes maintenance and repair fees.

For depreciating assets, you’d need the receipt, a usage log, the date you first used it for work, and an outline declaring how you intend to utilise it. 

 

Consider the Fixed Rate Method

The fixed rate method enables you to claim selected WFH expenses hourly. As of 2023, the fixed rate method increased to 67 cents per hour–a rise from 52 cents between the 2018–2019 and 2021–2022 fiscal years.

You don’t need a dedicated workspace to use the fixed rate method, so it’s a great option for people living in flats and bungalows. 

The ATO needs evidence of your work patterns, so use timesheets to record your hours from home. Use a logbook to track work-related telephone usage and electricity and gas bills to show you’re not deducting bills for personal use.

 

Use the Actual Cost Method

The actual cost method enables you to get a more accurate deduction on expenses made for bills and equipment. While this is a useful way to maximise your tax savings, it does incur more detailed record keeping. 

As of 2023, you don’t need a dedicated workspace but can’t deduct indirect expenses. For instance, you couldn’t claim lighting or heating expenses while working in the living room where another tenant was using those utilities.

Records needed for the actual cost method include receipts and invoices and specific details like the amount paid, the date, and the supplier. You’d also need to calculate the percentage of each bill dedicated to work.

 

Which Costs Aren’t Deductible?

You can’t deduct the following expenses:

• Personal use of utilities, such as electricity, phone interaction, or computer use
• Refreshments like tea, coffee, or groceries
• Other tenants’ use of accepted items

If you use the fixed rate method, you cannot claim another separate deduction. 

 

Maximise Your Tax Savings with Glance Consultants

Speak to a member of our friendly team if you need advice in determining which method is best for you and your unique working habits. 

We can help you prepare your tax returns with accurate deductible expenses and in the process assisting you in maximizing your tax refund. Contact us to get started.

Tax deductions relate to expenses paid from your pocket to run your business or complete workplace duties. The Australian Office outlines eligible costs that can reduce your assessable income, minimising your final tax bill. 

As a home-based business owner, you’re more likely to invest more of your personal finances into performing your role. For instance, your energy bill will encompass personal use and electricity used to power your computer, printer, and other devices. 

Taking advantage of tax deductions can maximise your finances, allowing you to expand crucial elements of your business. Read on as we summarise the key deductions for home-based businesses you need to know about before June 30th. 

 

4 Deductions for Home-Based Businesses

A home-based business operates primarily from home, unlike an external workplace like an office or warehouse. Review four expenses you can claim on your tax return below:

 

Occupancy Expenses

According to the ATO in 2023, You can claim occupancy costs, such as the following:  

• Rent
• Mortgage bills
• Land taxes
• Council rates
• Home insurance

Calculate the deductible by measuring the area of your home dedicated to work in square metres. You then compare that area to your home’s total area. Here’s a calculation you can use:

• House (2 floors): 186 square metres = 100%

• Home office: 8 square metres = 

• Rent: $1,200

You can use the formula: 100% (186 sqm) – 8 sqm = 92% divided 100 = 0.92 X $1200 = $1,104. Here, the deduction would be ($1200 – $1,104) $96. 

 

Utility Bills

Running expenses usually encompasses utility bills, including:

• Electricity
• Mobile phone bill
• Furniture
• Repairs on furniture
• Internet

If you don’t have a dedicated work area, you might be unable to deduct occupancy and running expenses simultaneously. For items with dual purpose (personal and professional), you must calculate the usage and take that percentage from the price you paid. 

 

Business Transport

Vehicle expenses cover the fuel spent on travelling to the following locations is claimable:

• Visiting clients’ premises to deliver or provide goods and services
• Retailers or vendors for supplies
• Bank for business banking purposes, like depositing cash
• Attend financial appointments with tax agents and advisors
• Post office to send work-related documents and items like invoices or goods

 

Work Equipment

Work equipment like printers and accessories like ink and paper are deductible. You can claim on work-related equipment, such as computerised electronic devices. 

 

What Deductions Can’t You Claim?

You cannot claim refreshments like food, tea, and coffee. Personal expenses aren’t applicable either. For example, if you purchased a printer but only used it for personal documents, you cannot claim the cost of that device. 

You can’t claim further deductions on the above expenses if you receive the 0.67 cents per hour through the Fixed Rate Method. 

You may be subject to capital gains tax if you sell the house where you worked. You may not deduct this tax but could be eligible for small business CGT concessions. Ensure you maintain your tax and financial records to apply this initiative. 

 

Speak to Our Certified Accountants

Let’s tackle your tax return together to ensure you optimise your annual savings. Contact us to see how our certified accountants and advisors can best support you.

 

Electronic tax lodgement offers a more accessible way for small businesses and individuals to meet their obligations. Unfortunately, online criminals take advantage of this convenience, with the Australian Taxation Office reporting more than 25,000 cases of impersonation in the 2021–2022 financial year alone.

Losing money to unlawful situations can have devastating effects on small businesses trying to establish themselves in their chosen industry. We’ve constructed this useful guide outlining prevalent tax scams you should know about and several tips on mitigating them.

 

What Are Tax Scams?

Scammers falsify their identity, posing as the ATO and misleading small businesses into paying what they believe is their business tax bill or an “excess”. Besides financial damage, responding to scams also puts businesses’ confidential information, such as direct bank details. 

Scammers are most likely to reach you through the following mediums: 

• Phishing: Fake SMS, WhatsApp, and email messages requesting finances or information. The sender may pose as myGov or software providers.
• Cold calls: ATO impersonators may suggest that you’ve underpaid tax and must follow a process to complete your tax bill. Alternatively, they may say you’re due a refund to steal your financial information. 

 

How to Avoid Tax Scams

Protect yourself by reviewing the preventative measures against tax scams below:

 

Understand How the ATO Communicates

The ATO enables you to assign communication preferences of:

• Direct electronic mail via your myGov portal
• Paper mail sent via post

Although you may receive texts or emails alerting you of unread notifications in your myGov portal, the ATO will never demand action, like paying money or submitting files using these methods. It won’t call you either.

One way to check the legitimacy of email senders is by clicking on the address. Scammers usually have odd-looking email addresses containing sporadic numbers and letters. Seeing household address providers like “gmail.com” also indicates a scam.

Log into your myGov account properly and review your communication history to see all correspondence sent to you.

 

Avoid Application Fees

Scammers create websites offering tax file numbers (TFN) and Australian business numbers (ABN) for a fee. Avoid these websites completely and process all applications via the ATO’s website. TFN and ABN applications are free to complete, so avoid any source requesting payment.

 

Don’t Click on the Links Provided

Scam messages might provide a false link, posing as a shortcut to the myGov login. These links could contain malware, viruses, or trojans that could corrupt your device. 

They could also seize control over your device, downloading recording software, meaning scammers can see your activity, such as logging into bank accounts. Always use the correct process to access your financial accounts and remove messages containing suspicious links.

 

Get Advice From Reliable Sources

False social media accounts appearing as the ATO or other reputable tax sites could provide advice via private messages. While this advice could be highly inaccurate, meaning you submit your tax documents incorrectly, they could also demand payment or confidential login information. 

The ATO doesn’t communicate via social media, so omit any messages on these platforms. Only liaise with certified agents who can prove their credentials.

 

Receive Legitimate Support From Glance Consultants

Working with certified accountants at Glance Consultants gives you peace of mind, knowing your finances and information are safe. You’ll receive quality support and advice on taxes, accounting, bookkeeping, auditing, strategy planning, and more that you can trust. Contact us today to see how we can help you.

 

Disclaimer: Glance Consultants cannot provide legal advice. Please contact the authorities, banking institute, or a legally recognised body for support if you’ve fallen victim to a scam.

 

“Business structure” defines the legal organisation of an entity providing goods and services. 

Selecting the right business structure is arguably one of the most vital decisions you’ll make as a business owner. It impacts the way you handle daily operations, how your business is taxed, your liability level, and the legal obligations you need to meet for compliance purposes.

We have compiled a definitive guide exploring each business structure’s requirements, advantages, and disadvantages.

 

4 Primary Business Structures in Australia

The entity’s size, number of directors or owners, and whether you’ll employ others impact a business’ structure. Review the four common entities below: 

 

Sole Trader

A sole trader is the simplest business structure. You have full control over the business, but are personally liable for all debts and losses. As a sole trader, you can employ others.

Like other structures, you must register for an Australian Business Number (ABN) and GST if your annual income exceeds the threshold. You can also access the 50% capital gains tax. 

It’s a relatively straightforward structure that can be easy to set up and run with minimal paperwork and costs. As a sole trader, you’re taxed as an individual and report your business income on your individual tax return.

The main downside of being a sole trader structure is that you incur personal liability for all business debts and obligations. If your business fails, creditors can come after your personal assets, such as your home or car.

 

Company

A company is a separate legal entity. Shareholders own the company, while directors are responsible for the day to day operations of the business. 

Companies have different tax compliance obligations compared to other types of businesses and pay corporate tax at a flat rate on their profits. 

Unfortunately, a company doesn’t have access to the same 50% capital gains tax concession that sole traders and partners do.

One advantage of setting up a company structure is that the shareholders’ liability is limited to their investment in the company; they are not personally liable for the business debts and liabilities. So, it’s usually the preferred structure for high-risk business operations that need a solid asset protection strategy in place.

 

Partnership

A partnership business structure is similar to a sole trader in that the partners are legally responsible for all aspects of the business. However, in a partnership, two or more owners share equally in the profits and losses of the business.

Partnerships are also relatively easy and inexpensive to set up and have fewer compliance requirements than companies. However, each partner is jointly liable for all debts and liabilities incurred by the partnership.

In terms of their tax obligations, partners pay tax on the share of the net partnership at their respective individual tax rates. 

 

Trust

A trust is a legal arrangement where assets are held by one party (the trustee) for the benefit of another party (the beneficiary). There are several types of trusts in Australia, including fixed, discretionary, unit, and hybrid trusts.

Discretionary trusts are often the preferred type in a business structure because of their flexibility. Essentially, a discretionary trust gives trustees complete discretion over how to distribute business profits—which is a popular (legal) tax minimisation strategy. Beneficiaries then pay tax on their distribution share at their personal income tax rates. 

Another popular benefit of a trust structure for your business is that it provides asset protection for the beneficiaries. This means that if the trustees are sued, the assets of the trust will not be at risk.

Because the trustee essentially operates the venture on behalf of the beneficiaries, we recommend you appoint a corporate trustee because its shareholders will also benefit from a company’s limited liability. 

Unfortunately, one key downside of a trust is that it must distribute all of its income to its beneficiaries. This means that if you have a business that is growing rapidly and reinvesting its profits back into the business, a trust is not the best option. The reason for this is that any profits left in the business would be subject to tax at the highest marginal tax rate.

Contact Glance Consultants today for help, let’s get the best out of your business

Thought of registering a trademark for your new business?

The ATO has issued a reminder around trademarks!

For background, a trademark legally protects your brand and helps customers distinguish your products or services in the market from others. Trademarks can be used to protect a logo, phrase, word, letter, colour, sound, smell, picture, movement, aspect of packaging or any combination of these. In short, they protect your brand, products and services.

Trademarks are different from a business name which is the name you trade under.

For exclusive rights to your business name, you’ll need to protect it with a trademark. This will help you:

■ protect your name and stop others from trading with it
■ get exclusive use of that trademark throughout Australia
■ have protection in all Australian states and territories for an initial period of ten years.

Trademarks are intellectual property. Other types of intellectual property include:

■ patents
■ design rights
■ plant breeder’s rights
■ copyright
■ trade secrets.

While you don’t need a registered trademark to apply for an ABN, registering a trademark for your business name, logo, or other sign means you have exclusive rights to use your trademark in Australia.

■ A registered trademark is a licensable and saleable asset. It also provides a legal avenue to stop others from using it on similar goods and services. A 5-minute check can help save you a lot of disappointment and work.
■ Check out IP Australia for more information and get your trademark sorted today.
■ The same ATO release, reminds taxpayers of the business registrations and insurances that may be required for your new business.

As a new business, you may also need to:

■ register for goods and services tax (GST)
■ register for pay as you go (PAYG) withholding and meet your super obligations for any employees you hire
■ register for fringe benefits tax (FBT) when you are providing fringe benefits to your employees.

You can apply for an ABN and other key business registrations through the Business Registration Service.

You may also need business insurance and licences to protect your business. It’s important to understand the licences and permits you need to do certain activities and help protect your business and employees.

 

Self-education: when is it deductible?

If the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer’s income from current (but not new) income-earning activities, a deduction for self-education expenses incurred will be allowable.

There is no specific provision in the income tax legislation that allows a deduction for self-education expenses. Rather the expenditure falls for consideration under the general deductibility provision of the Tax Act. In broad terms this allows for, but also limits, deductible expenses to those incurred in the course of earning assessable income. This requires a close nexus between the outgoing and assessable income: the outgoing must be incidental and relevant to the gaining of the assessable income.

Principle 1 – the self-education maintains or improves current skills or knowledge

Where a taxpayer’s income-earning activities are based on the exercise of a skill or some specific knowledge, a deduction for self education expenses incurred will be allowable where the subject of self-education enables the taxpayer to maintain or improve that skill or knowledge. The High Court decision of FC of T v Finn [1961] HCA 61; 106 CLR 60 is a leading authority for this principle. In this case, Finn, a senior government architect, was allowed deductions for expenses incurred on an overseas tour focused on the study of architecture.

This principle requires an assessment of a taxpayer’s current skills and knowledge compared against the subject of self-education, and a consideration of how close the subject is to those current (not future) income-earning activities. (The ATO advises the relevant employment activities are the duties and tasks expected of an employee to perform their job and are usually set out in an employee’s duty statement / contract of employment.)

Principle 2 – the self-education leads to, or is likely to lead to, an increase in income from current income-earning activities

If the subject of self-education leads to, or is likely to lead to, an increase in the taxpayer’s income from current (but not new) income-earning activities, a deduction for self-education expenses incurred will be allowable.

It is not necessary for the expected increase in income or promotion to be realised for self-education expenses to be deductible, for example, if the taxpayer’s employment was terminated before gaining the promotion or increase. However, the expenses should be incurred whilst the taxpayer was employed (even if on leave without pay), and generally with a real prospect or likelihood of leading to such an increase or promotion.

The important thing for taxpayers is to retain their receipts in relation to their self-education. If you have any questions around what expenses are claimable, contact us.

 

Avoid schemes targeting SMSFs

Sometimes promoters of schemes target self-managed super funds (SMSFs). Schemes can include tax avoidance arrangements that inappropriately channel money or assets into your SMSF so you pay less tax. They may also include arrangements promoting the illegal early release of benefits from your fund for personal use.

To assist you with identifying schemes that may jeopardise your SMSF’s compliance, the ATO recently updated its web content to provide more information:

■ Schemes targeting SMSFs
■ Residential property purchased through illegal schemes.

Remember, if:

■ You’ve been approached by a someone who recommends you set up an SMSF or use your existing SMSF to participate in one of these schemes or a similar arrangement, you should check the ASIC Financial Register to make sure they have a financial licence. If you’re in doubt, you should seek a second opinion from a licenced adviser who is independent from the scheme.
■ You’re already dealing with a suspected promoter of an SMSF scheme, then you should contact the ATO immediately so they can help.

CAUTION!

Don’t be tempted by ‘too good to be true’ schemes. You may risk losing some or all of your retirement savings and receive significant penalties if you enter into one of these schemes. You could also be disqualified as a trustee of your SMSF and may be required to wind up your fund.

 

Discounting your capital gain

The capital gains tax (CGT) discount can reduce by 50% a capital gain that you make when you dispose of (sell) a CGT asset that you have owned for 12 months or more. However, the discount is only available to:

■ individuals (but not foreign or temporary residents)
■ complying superannuation funds (33% discount applies, not 50%)
■ trusts, and
■ life insurance companies in respect of a discount capital gain from a CGT event in respect of a CGT asset that is a complying superannuation asset.

The most notable omission from this list is companies. They are not eligible for the general discount. This should be factored in when assessing which entity is chosen to acquire a CGT asset.

12-month requirement

The tax legislation requires that to qualify for the general discount, the asset must have been acquired at least 12-months before the time of the CGT event (sale).

The 12-month period requires that 365 days (or 366 in a leap year) must pass between the day the CGT asset was acquired and the day on which the CGT event happens…effectively 12-months and two days! If a taxpayer is nearing the 12-month mark, they should consider delaying the sale where possible until this timeframe is satisfied and therefore becomes eligible for the discount.

For the purposes of satisfying the 12-month holding period, beneficiaries can treat an inherited asset as though they have owned it since:
■ the deceased acquired the asset, if they acquired it on or after 20 September 1985
■ the deceased died, if they acquired the asset before 20 September 1985.

Note more generally that for CGT assets acquired before 20 September 1985, no CGT is payable anyway.

Foreign residents

The CGT discount no longer applies to discount capital gains of foreign or temporary residents or Australian residents who have a period of foreign residency after the below date. However, the CGT discount will still apply to the portion of the discount capital gain of a foreign resident individual that accrued up until 8 May 2012 (the date of announcement).

This measure applies where:

■ an individual has a discount capital gain, including a discount capital gain as a result of being a beneficiary of a trust, from a CGT event that occurred after 8 May 2012, and
■ the individual was a foreign resident or a temporary resident at any time on or after 8 May 2012.

The effect of the measure is to:

■ retain the full CGT discount for discount capital gains of foreign resident individuals to the extent the increase in value of the CGT asset occurred prior to 9 May 2012
■ remove the CGT discount for discount capital gains of foreign and temporary resident individuals accrued after 8 May 2012, and
■ apportion the CGT discount for discount capital gains where an individual has been an Australian resident, and a foreign or temporary resident, during the period after 8 May 2012. The discount percentage is apportioned to ensure the full 50% discount percentage is applied to periods where the individual was an Australian resident.

If you have any questions about the 50% discount, please contact us.

 

Appointing an SMSF auditor

Early last month, the ATO issued a reminder around auditors. If you have an SMSF, you need to appoint an approved SMSF auditor for each income year, no later than 45 days before you need to lodge your SMSF annual return (SAR).

Your SMSF’s audit must be finalised before you lodge, as you’ll need some information from the audit report to complete the SAR. You must ensure the correct auditor details are provided in the SAR, otherwise you may be penalised.

Your auditor will perform a financial and compliance audit of your SMSF’s operations before lodging.

Remember, an audit is required even if no contributions or payments are made in the financial year.

Your approved SMSF auditor must be:

■ registered with the Australian Securities and Investment Commissioner – and you’ll need to provide their SMSF auditor number on your SAR
■ independent – auditors shouldn’t audit a fund where they:
• hold any financial interest in the fund, or where they have a close personal or business relationship with members or trustees
• work for a firm which provides your fund with other services such as certain accounting services, tax, super or financial planning advice.

If a fund doesn’t meet the rules for operating an SMSF, the auditor may be required to report any contraventions to the ATO.

Approved SMSF auditors can be busy so it’s a good idea to start this process early when the time comes around.

You can find a list of approved SMSF auditors on the ASIC website.

 

Costs of a caravan/motor home for work-related travel

SCENARIO

I run a small business that requires me to travel quite a lot, particularly to country areas where I will often stay overnight. To save on accommodation costs, I have purchased a caravan. I have a business logo on the side of the caravan that is on display when I attend town shows and events. Will the costs of purchasing and maintaining my caravan be deductible in my individual income tax return?

GUIDANCE

In these challenging and changing times, many have jumped on the modern version of the proverbial band wagon and purchased a caravan or motor home to use for work or business-related travel.

It is a common misconception that specific rules govern whether you can claim a tax deduction for the costs of purchasing and maintaining a caravan or motor home. A caravan or motor home is no different to any other work or business asset you own, and the extent the expenses are deductible will depend upon the extent you use the caravan or motor home for income producing purposes. The complexity does not arise because the expenses relate to a caravan or motor home, but that the expenses (in our scenario above) are essentially travel and accommodation expenses, and this is an area of tax law that can be difficult to apply in practice.

Travel and accommodation expenses are deductible under the tax legislation where you incur these expenses gaining or producing assessable income, or they are necessarily incurred in carrying on your business.

Travel between two unrelated work locations is also deductible where neither of the two work locations is your home (although in this case, the costs may still be deductible under the general deduction provision).

Travel costs will not be deductible if they are a prerequisite to earning income, if you are living away home (rather than travelling on work) nor if they are as a result of your own personal choice or circumstances, eg, the costs are not deductible just because you decide it is more convenient to stay overnight. It would seem that if it is reasonable that you would stay overnight rather than travelling to and from a location within a day, and the reason cannot be attributed to a personal choice, then it is more likely the travel would be viewed as work-related.

Keeping a diary would help support your deduction (and is necessary as a sole trader travelling for six or more consecutive nights).

Generally, the depreciation and GST claim on a caravan or motorhome is not limited by the car limit (currently $68,108) because a caravan or motorhome (designed to carry a load of more than one tonne) is not a ‘car’ as defined in the tax legislation.

What if my business logo is on my caravan?

The good news is while the cost of the business logo will ordinarily be tax deductible as advertising, the bad news is the ATO is firmly of the view that placing a business logo on the side of a caravan (or any type of motor vehicle) will not turn private travel into business travel, even if the signage is affixed permanently. This means if the travel expenses are not tax deductible without a logo, the travel expenses will not be deductible with a logo.

 

Click to view Glance Consultant’s September 2023 newsletter via PDF

 

 

 

 

Whether running a small business or operating as a sole trader, having a good eye for financial planning and meeting obligations is key to keeping your services afloat. 

A good strategy should facilitate growth, raise profit margins, and prepare for tax. Analysing your cash flow and understanding how to manage various reporting sheets will give you the information needed to succeed. So, where do you start?

We’ve compiled a helpful checklist outlining the fundamental aspects of developing a reliable strategy. 

 

Manage Taxes Obligations 

Regardless of whether you’ve registered your small business under a company, trust or sole trader structure, you may have the following obligations:

• Goods and services (GST) tax (You must register and pay GST if you generate revenue greater than $75,000 on an annual basis)
• Superannuation contributions (if you employ yourself or staff)
• Income tax
• PAYG Tax withholding

If you’re keen to discuss a few strategies around tax, then we’re ready to give you a hand and provide some expert advice.

Remember, setting aside profit for taxes is important as well, because your quarterly BAS and income tax obligations come around quicker than you might think!

 

Mastering the basics: Financials Statements

These are the foundations (pun intended) of understanding your business’s financial health and there are two primary areas to focus on for you.

• Balance sheet: This provides a snapshot of your business’s financial position at any given time. It shows your assets, liabilities and equity giving you the best overview of what your business owns and owes.
• Profit-and-loss statement: This statement summarises all your revenue, expenses and profit over a specific period of time (usually a month, quarter or year) and helps provide the best insight into whether your business is making a profit or a loss. It’s handy for knowing if you have made money over a specific period of time, even if you don’t get paid for a while after.

Accounting software such as Xero, makes creating and managing these financial statements easier. 

 

Identify Your Profit Margins

Evaluating your business’ profitability lets you identify expansion opportunities, whether that’s by recruiting new individuals so you can take on more jobs efficiently or investing in cutting-edge equipment. It also encourages you to review your pricing strategy to ensure it remains profitable but reasonable. 

So, how do you work out your profit margin? Using your profit-and-loss statement, try this calculation: Net Profit divided by your Total Revenue = Net Profit Margin.

This indicator then shows you that on average, when you make $1 dollar of revenue, how much money do you make as profit as a result. A healthy profit margin ensures your business remains sustainable going forward.  

 

Receive Professional Support 

Financial management is a whole job in itself. Enlisting the support of skilled accountants takes the weight off and lets you focus on the work you enjoy. Contact us to get the ball rolling on developing a financial strategy right for your business’ unique needs.

Whether running a small business or operating as a sole trader, having a good eye for financial planning and meeting obligations is key to keeping your services afloat.

A good strategy should facilitate growth, raise profit margins, and prepare for tax. Analysing your cash flow and understanding how to manage various reporting sheets will give you the information needed to succeed. So, where do you start?

We’ve compiled a helpful checklist outlining the fundamental aspects of developing a reliable strategy.

 

Manage Taxes Obligations 

Regardless of whether you’ve registered your small business under a company, trust or sole trader structure, you may have the following obligations:

• Goods and services (GST) tax (You must register and pay GST if you generate revenue greater than $75,000 on an annual basis)

• Superannuation contributions (if you employ yourself or staff)

• Income tax

• PAYG Tax withholding

If you’re keen to discuss a few strategies around tax, then we’re ready to give you a hand and provide some expert advice.

Remember, setting aside profit for taxes is important as well, because your quarterly BAS and income tax obligations come around quicker than you might think!

 

Mastering the basics: Financials Statements

These are the foundations (pun intended) of understanding your business’s financial health and there are two primary areas to focus on for you.

• Balance sheet: This provides a snapshot of your business’s financial position at any given time. It shows your assets, liabilities and equity giving you the best overview of what your business owns and owes.

• Profit-and-loss statement: This statement summarises all your revenue, expenses and profit over a specific period of time (usually a month, quarter or year) and helps provide the best insight into whether your business is making a profit or a loss. It’s handy for knowing if you have made money over a specific period of time, even if you don’t get paid for a while after.

Accounting software such as Xero, makes creating and managing these financial statements easier.

 

Identify Your Profit Margins

Evaluating your business’ profitability lets you identify expansion opportunities, whether that’s by recruiting new individuals so you can take on more jobs efficiently or investing in cutting-edge equipment. It also encourages you to review your pricing strategy to ensure it remains profitable but reasonable.

So, how do you work out your profit margin? Using your profit-and-loss statement, try this calculation: Net Profit divided by your Total Revenue = Net Profit Margin.

This indicator then shows you that on average, when you make $1 dollar of revenue, how much money do you make as profit as a result. A healthy profit margin ensures your business remains sustainable going forward.

Receive Professional Support 

Financial management is a whole job in itself. Enlisting the support of skilled accountants takes the weight off and lets you focus on the work you enjoy. Contact us to get the ball rolling on developing a financial strategy right for your business’ unique needs.

 

As a business, keeping your tax logging and books updated is essential. Suppose you use your vehicle for work purposes. In that case, the Australian Taxation Office allows you to claim a deduction for these expenses, which is a huge help for small and self-employed businesses.

 

To learn more about vehicle expense tax deductions and how this can affect your business, read on, as our guide covers all the essential points you need to know! 

 

How to Figure Out Your Eligibility 

The first step to figuring out if your vehicle qualifies for tax deductions is to check if you are eligible. Of course, you can’t claim anything for the personal use of your vehicle, and the following only applies if you use your vehicle for work-related pursuits. Work-related motor use includes;

• A car owned, leased or hired in your name (under a hire-purchase arrangement)
• Someone else’s car
• Any other motor vehicle (not defined as a car)

 

Which Work-Related Activities Are Included in Vehicle Tax Deductions? 

If you’re unsure if the activity you have used a vehicle for is tax deductible, the following list should provide some clarity; 

• Essential work duties, including travelling from your regular workplace to meet clients off-site. 
• Attending work meetings.
• Collecting or delivering items.
• Travelling to and from different work locations. 

 

Grey Areas of Vehicle Tax Deductions

It’s a common misconception that you must own your car for vehicle tax deductions, but deductions cover leased, hired, and other people’s cars you’ve used for work-related activities. 

While travelling to work meetings from your site is included in tax deductions, you generally can’t claim the journey between home and work. This commuting is considered private travel, so you can’t include it in your tax deductions. However, there are some cases that you could look into regarding travelling from home, such as if you usually work remotely but are now required to travel to various sites. 

 

How to Calculate

If your vehicle is classified as a car, you can use the cents per kilometre or logbook calculation methods, utilising ATO’s expenses calculator to use either method efficiently. 

You must use the actual cost method for vehicles not classed as cars. You must calculate the percentage ratio of work-related travel to the total travel and multiply this by the total expenses. 

 

Keep Your Records Safe

The best way to ensure you accurately calculate your vehicle tax deductions is by having good record-keeping. The records you keep will depend on the calculation method you use. Let’s take a look at these options:

Logbook: Represent your past year’s travel for at least 12 weeks, detailing each journey’s purpose, odometer readings for the starts and ends of trips, and the total kilometres travelled during the period. You should also include odometer readings at the beginning and end of each income year. 

Cents per kilometre: record work-related trips and clearly show how you work out business kilometres, either in a diary or the myDeductions in the ATO app.

 

Need Help Calculating Your Business Expenses and Vehicle Tax Deductions? We Can Help

We understand that calculating taxes can be challenging, and you may need support with your vehicle tax deductions. Contact us today, and we will provide you with the help you need.