Claiming travel expenses using the substantiation exception

Work related travel expense claims have become an audit target in recent times. Especially for those claiming travel expenses who use the substantiation exception and claim deductions within the ATO’s published “reasonable” amounts. These claims can be quite significant and can result in large refunds which is why the ATO have set their sights on catching out the illegitimate claims.Claiming travel expenses

When an employee receives a travel allowance for work related travel they are not required to provide receipts for travel expenses incurred (e.g. meals, accommodation and incidentals) provided that the following three conditions are satisfied:

  1. The travel allowance received is a bona fide (genuine) travel allowance. A travel allowance is considered bona fide if it is an amount that can be reasonably expected to cover accommodation, meals or other incidental expenses associated with the travel. The ATO does not have a minimum set amount per day to be considered bona fide, rather, it is determined on a case by case basis focusing on whether the allowance would be expected to cover the travel costs.
  2. The travel allowance must have been paid to cover a specific overnight trip. It cannot be an amount paid at an hourly rate for certain hours worked; this does not constitute a specific trip.
  3. The travel expense claims must not exceed the relevant reasonable travel amounts prescribed by the ATO, which provide specific daily rates for accommodation, meals and incidentals depending on salary and location of travel. For the substantiation exception to apply, the travel claim must not exceed these daily rates.

If the above conditions are met then you do not need to provide receipts under the substantiation exception when claiming travel expenses. However, the ATO still require that you provide evidence on how you calculated the travel claim and that the amount claimed was actually incurred. This can often be through bank and/or credit card statements.

Pro Tips:

There is a common misconception that if you receive a travel allowance you are entitled to claim up to the ATO’s reasonable amounts. This is not the case; you can only claim expenditure for amounts which you can show were incurred.

Regardless of the substantiation exemption, keeping receipts for all travel expenses will avoid any uncertainty about what travel expenses you can claim.

Related blogs:

Employee travel expenses
Home to work travel – is it deductible?
What can I claim in my tax return without receipts?

Author: Allan Edmunds
Email: allan@faj.com.au

 

Do I need a Binding Death Benefit Nomination?

Did you know that your Will does not control who your superannuation benefits go to upon death?

On death, a members super benefit becomes payable as either a lump sum or a pension. The trustee of the super fund, in accordance with the fund’s trust deed, makes a decision as to who these benefits are paid to.

However, as a member you are able to make a written direction, known as a Death Benefit Nomination, to your super fund specifying who receives your death benefit. This notice can be binding (known as a Binding Death Benefit Nomination or non-binding (known as a Non-Binding Death Benefit Nomination).

If you make a valid Binding Death Benefit Nomination, the trustee must pay your death benefit in accordance with your nomination. If you make a Non-Binding Death Benefit Nomination, the trustee can have regard to your nomination, but does not have to follow it.

Additionally, your nomination can be lapsing or non-lapsing. A lapsing nomination must be renewed after it lapses (usually every three years) and a non-lapsing nomination stays in place until it is revoked or replaced.

However you can’t nominate anyone you like to receive your superannuation death benefit. Under super law you can only nominate either the executor of your Will or a superannuation dependant (e.g. spouse and children). If it is paid to the executor of your Will, the benefit then forms part of your personal estate and must be paid out in accordance with the terms of your Will.

The importance of Binding Death Benefit Nominations was highlighted in the 2013 case of Wooster v Morris. Mr Morris (the deceased) had two adult daughters from a previous marriage, and a second wife (Mrs Morris). Mr & Mrs Morris were joint trustees of their self-managed super fund and Mr Morris had made a Binding Death Benefit Nomination in favour of his two daughters.

Mr Morris subsequently died, and Mrs Morris appointed herself as sole trustee of the SMSF. She argued that the Binding Death Benefit Nomination that Mr Morris made was not binding, and paid herself the entire death benefit of $924,000.

The daughters challenged this in court and the court found that the nomination was binding and held in favour of the plaintiffs. Without the Binding Death Benefit Nomination, the daughters would have had no claim to the death benefit. This was a good result and shows the importance of having a properly drafted and executed Binding Death Benefit Nomination that has regard to the contents of your Will, your SMSF trust deed, and your estate plan.

Pro tips:

Make sure you ask your lawyer or other professional advisers about Death Benefit Nominations when doing any of your estate planning

Appointing an Enduring Power of Attorney is another important aspect of estate planning, which enables another person to make a decision on behalf of someone that becomes incapacitated

If you have a lapsing Death Benefit Nomination, make sure you diarise to have this extended immediately on the expiry date.

 

Author: Heather Cox
Email: heather@faj.com.au

 

New audit rules for Clubs and Associations

From 1 July 2016, the audit rules for clubs and associations in WA have changed.

Do you need help understanding the rules?

From 1 July 2016, smaller incorporated associations – that is, clubs and associations with less than $250,000 revenue per annum – will have no requirement to undertake a review or audit of their current accounts.

Not for profits with a turnover between $250,000 to $1,000,000 will need their financial statements either reviewed or audited by a Chartered Accountant or a Certified Practising Accountant.

Associations with a turnover of more than $1,000,000 cannot select a review and must have an audit, and their financials must be audited by a Chartered Accountant or Certified Practising Accountant with a public practice certificate, or a Registered Company Auditor.

It may seem like additional time, effort and expense to have an annual audit, but there are a number of reasons and benefits for having an audit conducted –

  • an audit of the financial records of the association ensures greater accountability to the members
  • the audit gives assurance that all funds received by the organisation have been correctly collected, documented and banked. It shows that all monies spent by the organisation were for the purpose of the association, approved by the management committee, and documented. Apart from anything else, this helps to protect management committee members against unfounded allegations of misconduct;
  • the audit provides an account of the assets of the association and verifies that records and registers are properly maintained;
  • the audit functions as a check and balance. It requires that the financial statements of the association be kept to a standard in order for the audit to occur and will indicate areas that may require improvement;

The FAJ Auditing team can complete your club’s audit quickly, professionally and at competitive cost.

For additional information about the new audit rules for clubs and associations, please refer to the Department of Mines, Industry Regulation and Safety website which contains questions and answers in relation to the new association law.

 

Author: Daniel Papaphotis
Email: daniel@faj.com.au

 

 

Super Guarantee Amnesty ends 24 May 2019

Over recent years we have noticed the ATO applying more and more resources in the area of Super Guarantee. Super Guarantee is the compulsory 9.5% super that employers must pay to an employee’s super fund.

We are seeing many more audits based on complaints from employees who’s super has not being paid, along with the usual random checks that the ATO performs. The ATO’s data matching capabilities have improved over time which allows the ATO to more easily pick up employers underpaying super.

More recently we have seen the introduction of compulsory electronic reporting of super for employees which further assists the ATO’s data collection efforts.

There are currently very harsh penalties for employers not paying super for employees, or even just paying it late. The Super Guarantee Charge is a penalty equal to the amount of super not paid. In the case of an ATO audit, the ATO would require this to be paid in addition to the amount of unpaid super – that’s a 100% penalty! Further, if the super is paid late, the ATO can disallow a tax deduction for the super payments.

In an attempt to encourage employers who are aware of unpaid super payments to catch up, the government has introduced legislation into parliament to offer an amnesty period to get all unpaid super up to date.

The super guarantee amnesty applies to any super calculated from 01 July 1992 to 31 March 2018 and must be used by 24th of May 2019. If the amounts of unpaid super are declared to the ATO in the correct form and paid by the due date the Super Guarantee Charge penalty will not apply and the payment will be tax deductible. There will be some interest on the late payments though.

Bizarrely, at the time of writing this blog, the legislation to enact the super guarantee amnesty has still not yet passed parliament, so we can’t be sure whether amounts declared and paid under the amnesty will receive the penalty free and deductible treatment. And there’s not many sitting days left in parliament for the legislation to pass before the next election.

The ATO website states: If you’ve missed a payment or haven’t paid an employee’s super on time, you should lodge an SG charge statement and pay the amount owing to us. We will apply the current law to this statement however, if legislation is enacted, we will apply the benefits of the proposed amnesty retrospectively.

Further they state: Employers who do not disclose their SG shortfalls during the amnesty period may face harsher penalties if they are audited in the future.

So businesses with outstanding super are in a quandary – should they take advantage of an amnesty that might not even apply, before the amnesty date passes?

If you would like to speak to one of our accountants about unpaid super, call us on (08) 93355211 to make an appointment.

Other related blogs:

Making sense of SuperStream for Employers
When do I need to pay super for contractors?

 

Author: Heather Cox
Email: heather@faj.com.au

 

Can I move overseas and keep my self managed super fund?

Change of plans? A move overseas may be around the corner! But what does that mean for your Self-Managed Super Fund (SMSF)?

You must ensure your SMSF retains its status of an Australian Super Fund to avoid substantial penalties. To do this, there are three residency conditions to meet:

  1. The fund was established in Australia or at least one of its assets is located in Australia.
  2. The central management and control of the fund is ordinarily in Australia.
    • This requires the decision making, high level duties and activities to be performed in Australia, for example making investments and reviewing performance.
    • Generally, your fund will meet this requirement if the absence is intended to be temporary (defined as not more than two year) even if the central management of the fund is temporarily outside of Australia.
  3. The fund must either have no active members (i.e. no one making contributions or rollovers into the fund), or alternatively at least 50% of the assets must be owned by active members that reside in Australia.

Failure to meet these conditions may result in being classified as a non-complying fund, which can consequently result in the whole of the SMSF assets being taxed at 45%.

Pro tips:

  • Plan ahead if you are moving overseas to avoid significant penalties. Options include move your SMSF investments to an industry super fund, appointing further trustees such as adult children or advisors.
  • Consider suspending contributions to your fund while you are overseas. Contributions can be made into an alternate fund during this period an then rolled into the SMSF upon your return.

Follow this link for a checklist.

https://www.ato.gov.au/Super/Self-managed-super-funds/Setting-up/Check-your-fund-is-an-Australian-super-fund/

Other related blogs:

TBAR – what it means for an SMSF trustee
You need to act soon with collectables in your super fund
Access super before retirement

Author: Lachlan Hunn
Email: lachlan@faj.com.au

 

 

 

 

Choosing the Right Accounting Software

As an accountant who works predominantly with small to medium businesses, I am often asked to recommend an accounting software program to my clients.

Choosing the right accounting software to best suit your business is surprisingly difficult. Advances in technology over recent years have created both huge advancements in efficiency, but also a complexity that can be overwhelming if you are not technologically minded or financially adept.

The first step is to identify the important factors that will affect your choice, because the recommendation will depend on the characteristics of your business. Please note that my knowledge of the available programs is limited to my experience, and despite working with many programs for over 10 years now, I still do not claim to know them all inside and out. But here’s my tips:

  1. Do you have a good internet connection? If not you should choose accounting software that can be used on your desktop. Cloud software like MYOB Essentials, Xero, SAASU, Wave Financial etc. will not work well if your internet drops out, or if your connection is slow. If you can’t rely on your internet connection, my recommendation would be MYOB AccountRight. This product can be used on the local computer with no internet, and can also be uploaded to the cloud when needed so you can work with your accountant or in other areas where internet is available.
  2. Are you technologically and financially savy? I have found that business owners who already have experience with using accounting software and who have the knowledge to use a program to its greatest extent tend to prefer MYOB as there are more reports available and in a superior format (in the MYOB AccountRight products, but not in MYOB Essentials). On the other hand, if you are just starting out and learning how to use a product, most people seem to find Xero the most user friendly. I also like SAASU which is a bit cheaper and provides a much larger number of transactions on the basic package.
  3. Is cost important? Prices vary between different products and within product ranges. The cost of a subscription is dependent on how many transactions, number of employees, cloud or desktop, other features required like inventory, stock on hand, multicurrency etc. If you have a very simple business and just want the cheapest option have a look at Wave Financial. This is a cloud based software from Canada, but available in Australia. They do not charge a subscription fee, but rather charge a commission on sales that are paid for through the software. If you prefer a flat subscription fee the best value software I have seen is Intuit QuickBooks online. For $15 per month you get unlimited transactions and invoicing and payroll for up to 10 employees. SAASU is also good, but you only get payroll for 1 person on the $15 package and limited to $1,000 transactions.

If you are just starting a new business or looking to improve your record keeping you can book an appointment at FAJ for advice on accounting software by calling us on (08) 9335 5211. Our bookkeeping team has experience with all of the software products mentioned above and are also able to manage changeovers from old products, new business set-ups and training for business owners.

Other related blogs:

What are bank feeds?

 

Author: Heather Cox
Email: heather@faj.com.au

 

Holding costs and the impact on Capital Gains Tax


Holding costs are expenses associated with the continuing ownership of an asset like real estate or share investments. These costs help to reduce the amount of any taxable capital gain when the asset is eventually sold.

Examples of expenses that may be considered as holding costs include:

  • Council rates
  • Interest on loans used to finance the investment
  • Insurance
  • Land tax
  • Repairs & Maintenance

But holding costs do not include costs previously claimed as a tax deduction. So if you have a rental property and normally claim council rates as a tax deduction against rental income, the rates cannot form part of the cost base. However if you incur council rates on vacant land, you are not entitled to a tax deduction and could therefore record these as holding costs.

Importantly, to be eligible to add holding costs to the cost base of a CGT asset, the asset must have been acquired after the 21st of August 1991.

The concept of holding costs and their significant effects can be better understood through an example.

Mr and Mrs Smith purchased a holiday home in Margaret River on 1 July 2012 for $500,000. The property is considered a CGT asset as their main residence exemption is being utilised on a separate property in Perth. The holiday home was sold on 30 June 2017 for $800,000 which would ordinarily result in a $300,000 capital gain.

Mr and Mrs Smith incurred the following holding costs over the 5 years of ownership.

  • Insurance $10,000
  • Council Rates $15,000
  • Interest $75,000

As the residence was a holiday home (Purchased after 21 August 1991) and a deduction was not allowed during the time of ownership, these costs are eligible to be included in the cost base of the property. Therefore, the cost base will increase to $600,000 and the capital gain will reduce to $200,000.

Pro tips:

  • holding costs cannot be used to increase a capital loss
  • ensure that records of these costs are kept in the form of receipts, bank statements etc.

Other related blogs:

Capital Gains Tax and Building a House
Capital Gains Tax – Main Residence Series: Rent out your House
CGT Main Residence Exemption and Moving Overseas
Subdividing you main residence and selling the ‘backyard’

 

Author: Georgia Burgess
Email: georgia@faj.com.au

 

 

 

What should be on my tax invoice?

It’s a question we’re often asked – what should be on my tax invoice?

I’m sure you know that an invoice is a record of purchase and allows your customers to pay for goods or services you’ve provided them. Invoices give details of the purchase and price that’s agreed to. This allows you to maintain the correct records and meet your tax obligations. If you are not required to be registered for GST then your invoices are known as regular invoices. If you are registered for GST then your invoices must include the words “tax invoice.”

So what should be on your tax invoice?

Your tax invoice must include enough information to clearly determine the following seven details.

  1. that the document is intended to be a tax invoice
  2. the seller’s identity such as your business name or trading name
  3. the seller’s Australian Business Number (ABN)
  4. the date the invoice was issued
  5. a brief description of the items sold, including the quantity (if applicable) and the price
  6. the GST amount (if any) payable – this can be shown separately or, if the GST amount is exactly one-eleventh of the total price, as a statement such as ‘Total price includes GST’
  7. the extent to which each sale on the invoice is a taxable sale (that is, the extent to which each sale includes GST)

In addition, tax invoices for sales of $1,000 or more need to show the buyer’s identity or ABN.

Author: Kay Giles
Email: kay@faj.com.au

New Guidelines for FBT Exempt Motor Vehicles

It is a commonly held belief that if an employer provides a ‘Ute’ or similar commercial vehicle to an employee, that it is 100% tax deductible and will not attract Fringe Benefits Tax (FBT).

However most people are not aware that in this situation the ATO has always required that the employee’s private usage must be ‘minor and infrequent’ and the vehicle must be an ‘eligible vehicle’ for that exemption to apply.

In an attempt to clarify the rules around FBT exempt motor vehicles, the ATO has released new guidelines that provide ‘safe harbour’ to those employers that work within the ATO’s guidelines.

In a nutshell:

Eligible vehicles include either:

  1. A road vehicle designed to carry a load of at least 1 tonne (other than a vehicle designed for the principle purpose of carrying passengers) or more than eight passengers; or
  2. The vehicle has a designated load capacity of less than 1 tonne but is not designed for the principle purposes of carrying passengers

To meet the ATO’s safe harbour relief the conditions below must be met:

  1. The Employer provides an ‘eligible’ vehicle to a current employee;
  2. The vehicle is provided to the employee for business use to perform their work duties;
  3. The employer has a policy in place that limits private use of the vehicle and obtains assurance from the employee that their use is limited to that
    described below;
  4. The GST inclusive value of the motor vehicle is less than the luxury car tax threshold when acquired;
  5. The vehicle is not provided as part of a salary packaging arrangement and the employee cannot elect to receive additional remuneration in lieu of the
    use of the vehicle;
  6. Employees must provide written assurance each year that private use of the motor vehicle provided is limited to travel:
    a. Between their home and their place of work and any diversion adds no more than two kilometers to the ordinary length of that trip;
    b. No more than 1,000 kilometers in total for each FBT year for multiple journeys taken for a wholly private purpose; and
    c. No single, return journey for a wholly private purpose exceeds 200 kilometers.

If you are an employer and would like some assistance to reduce you potential FBT exposure in this area, please us on (08) 93355211 to make an appointment.

Other related blogs:

Reducing FBT with the otherwise deductible rule

Author: Heather Cox
Email:heather@faj.com.au

First home super saver scheme – now legislated

The First Home Super Saver Scheme (known as FHSS Scheme) that was initially introduced by the Australian Government in the Federal Budget 2017-18 has passed through parliament and is now law. Its purpose is to make it easier for home buyers to save for a deposit on their first home. This is achieved by saving for a home deposit inside a super fund which has low tax rate. It’s also possible that a super fund may have a higher rate of return over a standard savings account.

So here’s how it works. From 1 July 2017, first home buyers can make voluntary contributions (both before and after tax) of up to $15,000 per year up to a total of $30,000 across all years, to their superannuation account in order to purchase a first home. These contributions along with the earnings can then be withdrawn for a home deposit in the future.

You can use this scheme if you are a first home buyer and both of the following apply:
• You either live in the premises you are buying, or intend to as soon as practicable.
• You intend to live in the property for at least six months of the first 12 months you own it, after it is practical to move in.

The Government has provided an online estimator to assist first home buyers understand the advantages of saving for a home deposit this way through their superannuation fund. The estimator can be found at www.budget.gov.au/estimator

Other related blogs:

First home buyers super saving scheme

For advice and assistance with your home loan:

FAJ Home Loans

Author: Nick Vincent
Email: nick@faj.com.au