State Revenue WA imposes land tax based on the total unimproved value as determined by the Valuer-General on all land held by the same owners each year.

The assessment is based on your ownership of land at midnight 30 June of the previous assessment (financial) year. If you own more than one lot, your land holdings will be aggregated. That means the land valuations will be added together before the tax is calculated, and as land tax is a progressive tax, a bigger aggregated value results in a higher tax rate. If you own lots in a different capacity, these should be assessed separately.

The tax is assessed separately on any land you own solely, and opposed to any land you own with another person.  So if you own one house by yourself and one with your spouse, each should be assessed separately.  Your main residence is exempt.  If you hold land in trust for different persons (as trustee), tax is assessed separately on the land owned for each separate trust.

Sometimes when you own land personally and as trustee, these are inadvertently combined on one notice.  This is incorrect and may result in additional land tax being paid at a higher rate.

If your assessment includes land that is held by a trust, you should advise State Revenue in writing (an objection) to ensure your assessment is corrected.

To lodge an objection, it is advisable to provide proof of trust ownership, including the trust deed and Offer and Acceptance from the purchase of the land.  You can do this by letter to:

  • Commissioner of State Revenue
    RevenueWA
    GPO Box T1600
    Perth WA 6845

An objection against your assessment must:

  • be lodged within 60 days of the date of issue shown on your assessment notice
  • be in writing with OBJECTION clearly written at the top of the letter and
  • state fully and in detail the grounds of your objection.

Other related blogs:

How does WA land tax work?

Author: Stacey Walker
Email: stacey@faj.com.au

 

Hands up who’s heard of the Small Business Hardship Grant program? No one? Well, that’s not surprising as the State Government doesn’t seem to be making a heap of noise about it. But it’s a really big deal. Here’s why.

The WA Government is providing grants of between $3,750 and $50,000 for businesses impacted by recent health and social measures. Applications close on 30 June 2022.

This is not just for the hospitality industry. Any business that can show a decrease in business turnover of at least 30% for a consecutive 14 day period across a specified period is eligible to apply.

The specified period is 1 January to 30 April 2022. So you’ll need to find 14 consecutive days during that period where turnover is 30% lower than the same period in the year prior – i.e. compared to the same 14 day period between 1 January and 30 April 2021.

The grant has two tiers, so a 40% reduction in turnover commands a bigger grant than a 30% reduction.

The grant amount is also determined by the number of full-time employees a business had. A business with no employees can receive a grant of $3,750 or $5,000, a business with 20 or more full-time employees can receive either $37,500 or $50,000, and there’s a couple of levels in between.

There are some general conditions. Your business must have an annual turnover of at least $50,000, an Australia-wide payroll of less than $4 million and a valid and active ABN.

Not for Profit organisations are also eligible if they are a “commercial entity” – not well described but likely to mean the NFP must have a business operation component to its activities. If that is the case, it can include all income like grants and donations in its turnover reduction calculation.

A further quirk is that JobKeeper proceeds form part of the turnover calculation. This is likely to contribute to the turnover reduction for businesses and NFPs that received JobKeeper support in the March 2021 quarter.

There’s a similar rent relief grant available that’s worth a further $3,000 for businesses that operate from a leased premises. It’s based on a 30% turnover reduction, but over a 28 day period.

There is some evidence that needs to be uploaded with the application and there’s plenty more information available at the website of the Small Business Development Corporation. The SBDC have said clearly that businesses need to meet the criteria, but don’t need to provide a story as to why the reduction in turnover occurred.

You can follow the instructions on the SBDC website and lodge your own application, however there are some quirks and potential complexities in calculating the reduction in turnover. Please contact us as soon as possible if you require our assistance.

Author: Mark Douglas
Email: mark@faj.com.au

 

 

 

 

 

 

 

When renting out a property, it is crucial to consider when GST is applicable. To do this, it’s important to understand whether you are providing premises which are residential or commercial for rent.

Residential properties are rented out solely for the purpose of being an individuals’ or families’ dwelling or home. GST is not applicable on residential rent, meaning tenants are not entitled to claim GST credits on the expenses provided, and landlords are not required to collect GST on the rental income. The same is true even if you are currently registered for GST for other business purposes.

Commercial rental premises are considered to be properties that are rented out and used for business or income producing activities, such as hotels, offices, caravan parks or warehouses to name a few. Commercial rental income is subject to GST as is the property when purchased or sold.

Purchasing or Selling a Commercial Rental Property

If you are registered for GST and purchase a commercial rental property, then you will be entitled to claim a GST credit equal to one-eleventh of the purchase price of the property, as well as on any expenses incurred to purchase the property such as legal fees. To qualify for these credits the following must apply:
– It was not a GST-free sale of an operating business
– The margin scheme was not used to calculate the GST

When it comes time to sell the property, you will also be liable for GST, calculated as one-eleventh of the sale price (unless it was a GST-free sale or the margin scheme was used). You will also be entitled to claim GST credits on all GST inclusive expenses related to selling the property, such as legal fees and agents fees.

Renting Out Commercial Premises

When renting out the commercial premises, you are required to be registered for GST where your GST turnover is expected to be $75,000. This means you will be liable to charge and declare GST on the rental income you receive. You will also be entitled to claim GST credits on all GST inclusive purchases and expenses you incur for the property.

If you are unsure about whether or not you should be registered for GST when renting out your property, or need assistance doing so, then please do not hesitate to get in touch with our office and we can assist you in this process.

Related blogs:

Is there any GST when buying a commercial property?
GST withholding on new residential property

Author: Molly Ingham
Email: molly@faj.com.au    

 

The latest inflation figures were shocking, but really just told us what we all know, that costs are going through the roof.

The Australian Bureau of Statistics recently released the March 2022 CPI figures. The headline was that inflation for the twelve months is at 5.1% across Australia, but in Western Australia it’s far worse at 7.6%. In bad news for households, the biggest increase was in non-discretionary goods like fuel, health, household and education. For the March quarter alone, WA prices rose 3.3%.

Consumer confidence immediately fell by 6% following the release.

Business owners are being hit on several fronts. Rising costs will challenge many small businesses. Add to this a serious skills shortage, supply issues, escalating interest rates and plummeting consumer confidence and you’ve just about got the perfect storm.

It can be difficult for small businesses to increase their prices to compensate because they often have intense competition from larger competitors.

Some factors are beyond the control of business owners but the challenge is to identify what can be contained, even if it initially seems small or insignificant.

The first thing to look for is unnecessary expenditure. Almost every business has something in this category, whether it’s a forgotten software trial subscription, some excessive entertainment costs or a work vehicle that’s more about form than substance. Locate these and eliminate them.

The next step is to eyeball essential expenses and find ways to shrink them. Are you getting the best interest rate or merchant charges from your bank? What about insurance, software, IT services, phones and maintenance contracts? The best way to approach this project is to take a deep dive into your general ledger and question every significant supplier relationship. If nothing else, service levels might suddenly improve as a result of the enquiry.

The third stage is to look for efficiency gains. Don’t blindly do what you’ve always done. Converting to electronic communications can save a small fortune in postage. Creating an on-line ordering system saves the disruption of taking phone calls and improves accuracy. What about putting solar panels on the roof to reduce power costs (or better still, talk your landlord into paying for it)?

Unless staff are excess to requirements, HR should be just about the last cost you trim. But if you have inefficient or under-performing staff, move them on and replace them with someone that wants to contribute.

Another cost that should not be cut is marketing, but review the effectiveness of your marketing spend to ensure you’re getting value for money.

This won’t be the last inflation shock or interest rate rise and the sooner you take action the better positioned you’ll be to manage the impact.

Related blog:

Why a small business should be using monthly budgeting
You need a business road map
Cash is king

Author: Mark Douglas
Email: mark@faj.com.au

 

 

If you’re an individual in business as either a sole trader or in partnership, and your business makes a loss, you may be able to offset the loss against other income such as salary and wages. This reduces the tax you would otherwise have paid, but first you must prove to the ATO that the loss is real, i.e. it’s not a non commercial loss.

To show that losses are real, you must meet an income requirement and pass one of four tests.

Eligibility

For your losses to be deductible, you first need to meet an income requirement. If you don’t meet this you cannot offset your losses regardless of whether you pass any of the four tests that follow (unless you apply for the Commissioner’s discretion).

To meet the income requirement for non-commercial loss purposes your other income must be less than $250,000.

Your other income includes:

  • taxable income (ignoring any business losses)
  • total reportable fringe benefits amounts (these should be shown on your payment summary from your employer)
  • reportable super contributions (e.g. salary sacrificed and personal deductible super contributions)
  • total net investment loss (e.g. negatively geared property or investment portfolios)

If you pass the income requirement, you must then meet one of the four tests unless either:

  • you are covered by an exception to the rules
  • the Commissioner exercises discretion to allow you to offset your loss against other income

The four tests

Once you meet the income requirement you must then pass one of the four tests. These are:

  • The assessable income test – the business has assessable income of at least $20,000 (can be earnings or capital gains).
  • The profits test – the business had a profit for tax purposes in three out of the past five years, including the current year (note that if a business makes a profit for three years running then it will pass the profits test for the next two years regardless of whether it makes a loss, since three out of five consecutive years will be profit years)
  • The real property test – the value of real property or of an interest in real property that you used in the business on a continuing basis was at least $500,000. This includes land & buildings, but nothing used for private purposes. It also includes leased property.
  • The other assets test – the value of assets (excluding real property, cars, motor cycles and similar vehicles) you used on a continuing basis in carrying on the business was at least $100,000. This can include leased assets.

Deferring losses

If you are not able to deduct your business activity loss in the current year because you don’t pass any of the non-commercial loss rules, you can defer your loss for use in a later year.  If your business makes a profit in a following year, you can offset some or all of the deferred loss against this profit, up to the amount of your profit.

You can also claim the deferred loss against other income in a following year if during that year:

  • you meet the income requirement and the business passes one of the four tests, or
  • the Commissioner has exercised the discretion to allow you to claim the loss

Exceptions

If you don’t meet the income requirement but you meet one of the four tests, you can apply for the Commissioner’s discretion if either:

  • special circumstances occurred that were outside your control such as drought, flood, bushfire or some other natural disaster, which prevented your business activity from producing a tax profit, or
  • due to the nature of the activity, there is
    • a lead time before the business will make a tax profit
    • an objective expectation, based on independent evidence, that it will make a profit in a time that is considered commercially viable for that industry

Summary

  • If you are a sole trader or in a partnership and your business makes a loss, you may be able to offset your business loss against other income (often wages), reducing your income in that financial year
  • To be eligible, you must pass the income requirement and pass one of the four tests
  • The income requirement is that your ‘other’ income must be less than $250,000
  • The four tests are:
    1. The assessable income test – the business has assessable income of at least $20,000
    2. The profits test – the business had a profit for tax purposes in three out of the past five years, including the current year
    3. The real property test – the value of real property or of an interest in real property that you used in the business was at least $500,000.
    4. The other assets test – the value of ‘other’ assets you used in carrying on the business was at least $100,000.
  • If you are not able to deduct your business activity loss in the current year because you don’t pass any of the non-commercial loss rules, you can defer your loss for use in a later year
  • If your business makes a profit in a following year, you can offset some or all of the deferred loss against this profit, up to the amount of your profit

Related blogs:

Company carry back tax losses – what are the rules?

Author: Caleb Datson
Email: caleb@faj.com.au

 

It is important to distinguish between a travel allowance and a living away from home allowance (LAFHA) as they are taxed very differently.

A LAFHA is paid from an employer to an employee to cover the additional costs of temporarily living away from their normal residence to perform employment duties. The payment is tax free in the hands of the employee and should not be included as assessable income in the employee’s tax return. The employer will be subject to Fringe Benefits Tax on the LAFHA.

Any expenses incurred by the employee which have been covered by a LAFHA are not deductible as they are deemed to be private in nature and not incurred in the course of earning income.

Travel allowances are classed as assessable income for the employee and the costs associated with the travel are tax deductible. Such costs can include meals, accommodation, transport and incidental costs. To be classified as a travel expense the travel must make the employee stay away from home over night to perform employment duties. These costs are tax deductible as they have a sufficient close connection with employment duties.

The ATO has recently stated at if all the below are satisfied the allowance will be deemed a travel allowance:

The Employer:

  • Provides an allowance to an employee or pays or reimburses accommodation and food and drink expenses for the employee.
  • Does not provide the reimbursement or payment as part of a salary-packaging arrangement and the employee is not given the option to elect to receive additional remuneration.
  • Includes the travel allowance on the employee’s payment summary or income statement and withholds tax (if applicable).
  • Obtains and retains the relevant documentation to substantiate the fact that all of these circumstances are met.

The Employee:

  • Is away from their normal residence for work purposes;
  • Does not work on a fly-in fly-out or drive-in drive-out basis;
  • Is away for a short-term period being no more than 21 days at a time continuously and an overall aggregate period of fewer than 90 days in the same work location in an FBT year;
  • Must return to their normal residence when their period away ends

Other related blogs:

Claiming travel expenses using the substantiation method
Employee travel expenses and deductibility

 

Author: Rhys Frewin
Email: rhys@faj.com.au

Crowdfunding platforms like gofundme have become an increasingly popular method for individuals, businesses and charities to fundraise online. It generally involves the entity setting a fundraising target, then appealing to the public for donations in order to reach that target. Many taxpayers are aware that donations made to charities are tax deductible, but what most find surprising is that donations to crowdfunding platforms generally are not deductible. The reason is to do with the Australian Tax Office’s definition of what is considered to be a ‘deductible donation’.

In order for a donation to be tax deductible, it must meet the following criteria:

  • The donation must be made to a deductible gift recipient
  • It must truly be a gift or donation, meaning you voluntarily transfer the money without expecting to receive any material benefit at all
  • The donation must be money or property
  • It must comply with any relevant gift conditions (this is applicable to some deductible gift recipients)

The issue with individuals, businesses and charities on crowdfunding platforms is that commonly they are not registered as deductible gift recipients (DGR), therefore any donations to these entities are not tax deductible as per the ATO.

The best way to confirm that the charity you wish to donate to is a DGR is to check that they are listed on the ABN Lookup’s list of DGR funds & endorsed entities. This can be found by following the link below.

https://abr.business.gov.au/Tools/DgrListing

Related blogs:

ATO reminder about deductibility of donations
Is my deduction tax deductible?

Author: Tessa Roberts
Email: tessa@faj.com.au

 

Changes in the structure or ownership of a business is a common thing in modern society, however this does not automatically mean that when a business is sold, that everybody, from employees to employers, always know what they are entitled to or is required by them.

A share or equity sale occurs when an employer purchases a business structure (such as a company or trust) and the business stays the same. In this situation the employer will also take on the employees and will be responsible for their existing entitlements. It is important for the buyers to ensure that the employees entitlements are being calculated and paid correctly as they will inherit any associated liabilities.

An asset sale occurs when the buyer opts to purchase the assets of a business, such as client lists, business name and trademarks, and these assets are transferred to the buyer’s existing business structure as opposed to taking over the seller’s entity.

After a business has been sold by way of asset purchase, the new employer must recognise an employee’s service with the prior employer in reference to entitlements such as:

  • Sick & carer’s leave
  • Requests for flexible work arrangements
  • Parental leave

However there are also a variety of entitlements which the new employer is not obligated to recognise and includes the following:

Redundancy

  • A new employer who is not associated with the previous employer can choose not to recognise an employee’s redundancy entitlements, and in this case the previous employer will be required to pay the entitlements upon the employees termination.
  • An employee will not be entitled to receive redundancy entitlements if they reject the new offer of employment, which was on similar terms to the previous contract.

Annual Leave

If the employers are not associated entities then the new employer is not obligated to recognise an employee’s annual leave, and in this case the old employer will be required to pay out the employee’s annual leave upon the transfer. Often annual leave obligations are negotiated as part of the sale contract.

Long Service Leave

A new employer may choose not to recognise an employee’s prior service in terms of long service leave if the following occur:

  • If at 31st December 2009 the employee was not entitled to a long service leave agreement under a registered agreement.
  • There was a new agreement made from 1st January 2010 that replaces the old agreement.
  • The new agreement says that the employees prior service under the old agreement does not count towards their long service leave entitlements.

Unfair Dismissal

A new employer is not obligated to recognise prior service in relation to unfair dismissal if the following apply:

  • The employee is a transferring employee
  • The employers are not associated entities
  • The new employer provides the employee with a written notice prior to employment commencing that prior service would not be recognised

Notice of Termination

When a business is transferred, an old employer is required to give notice of termination to employees or alternatively provide payment in lieu. This is because when a business transfers the employee’s position is terminated with the old employer.

If however, an employee is terminated by the new employer after the transfer has taken place, then the employer must also give notice of termination and the termination pay amount will be calculated based solely on the service after the sale or transfer has taken place.  

As an employee it is important to know that your prior service and entitlements should generally be recognised by the new business owner. If not, you should question this with the new employer and you can contact FairWork for further information and advice.

 

Author: Molly Ingham
Email: molly@faj.com.au              

In order to promote research, development and innovation in Australia, the Australian Government offers tax incentives to eligible Companies.

Currently, the R & D Tax concessions entitle an eligible Company to a 43.5% refundable tax offset if the entity’s turnover is under $20 Million, or a 38.5% tax offset for Companies with turnover more than $20 Million. This means a Company making a profit would pay less tax and a Company that makes a loss can receive a cash refund based on their R & D expenses.

To work out if your business is eligible, you need to work through a couple of steps:

Step 1 – The operating entity must be a Company and be either incorporated in Australia, an Australian resident Company or both a resident of a Country with which Australia has a double tax agreement and carrying on a business in Australia through a permanent establishment.

Step 2 – The R & D activities must meet the requirements in the R & D Tax Incentive guidelines. You need to register your R & D Activity with AusIndustry within 10 months of the end of the income year in which you conduct your R & D activities. If your R & D activities meet the requirements you are issued with a registration number which then allows you to claim the R & D Incentive Offset in your Company tax return.

The R & D tax incentive registration process is a self-assessment system, but AusIndustry may review your application, so you need to make sure you meet the requirements yourself before applying.

At a high level, R & D activities are experimental activities:

  1. Whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience, but can only be determined by applying a systematic progression of work that:
    • Is based on principles of established science
    • Proceeds from hypothesis to experiment, observation and evaluation and leads to logical conclusions; and
  2. That are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services).

You are expected to search worldwide for an existing way to achieve your outcome before you start your R & D activity. That is, if it already exists, then your R & D activities are not eligible.

Record keeping is very important when making R & D tax incentive claims. As an example, the AusIndustry R & D tax incentive guide lists the following expectations:

“We expect you to be able to provide evidence that shows how you conduct, or plan to conduct, core R&D activities:

  • that are based on principles of established science
  • whose outcome cannot be known or determined in advance on the basis of current knowledge, information or experience worldwide
  • whose outcome can only be determined by applying a systematic progression of work – hypothesis, experiment, observation and evaluation, leading to logical conclusions
  • for the purpose to generate new knowledge
  • that are not excluded from being core R&D activities

We expect you to keep records of activities that you register or plan to register for the R&DTI

In your systematic progression of work, we expect to see details of how you:

  • develop your hypothesis
  • design your experiment
  • observe and record the results of your experiment
  • evaluate your results
  • reflect conclusions about your results. Do they support your hypothesis or generate other new knowledge?”

Claiming the R & D Tax Incentive can be a complex process requiring both scientific knowledge, along with excellent record keeping and the correct accounting set up to keep track of core and supporting activity costs. Due to this, many businesses wanting to claim the incentive turn to specialists in this area.

If you don’t want to engage a specialist, another option to determine your Company’s eligibility is to submit an ‘Advance Finding’ form. This online form takes you through a long series of questions about your R & D activities and once submitted and assessed will give you assurance about your eligibility.

Advance Finding forms can be found at:

https://business.gov.au/grants-and-programs/research-and-development-tax-incentive/apply-for-an-advance-finding

For more detailed information on claiming the R & D tax incentive visit

https://www.ato.gov.au/Business/Research-and-development-tax-incentive/Checklist-for-claiming-the-R-D-Tax-Incentive/

This page has a link to the ‘R & D tax incentive guide to interpretation’ which is a great starting point if you are thinking about claiming the incentive.

Other related blogs:

What is the research and development tax offset?

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

 

 

 

 

 

 

 

 

 

 

 

 

If you operate a professional services firm now is the time to assess how your professional firm profits are being distributed. The ATO has recently issued new guidance that expresses concerns about profit allocations that might allow professional practitioners to avoid paying their fair share of tax on the profits of the firm.

The new guidelines will apply from 1 July 2022 to assist professional firm practitioners to assess if their current arrangements are within the ATO’s expectations and considered low risk. Professional firms can include but are not limited to, engineering, architecture, accounting, law, financial services, law, medicine and management consulting.

Under the new guidelines, you will need to assess the firms profit allocation arrangement against two ‘gateways’.

The first gateway is the ‘Commercial Rationale’ of the arrangement. The decisions behind the arrangements of the firm and the way in which profits are distributed should be commercially driven. For example, the remuneration received by a professional from the firm should be paid on commercial terms as reward for their personal efforts and skills. Actions taken to gain a tax advantage rather than achieve a commercial objective will not meet the first gateway.

The second gateway is concerned if the practitioner’s arrangement contains any ‘high-risk features’. The guideline outlines a number of high risk features to consider such as non-arm’s length finance arrangements or issuing multiple classes of shares to non-equity holders.

If both gateways can be satisfied, the individual practitioner may use the risk assessment framework to self-assess which risk category they belong, which in turn gives an indication to the potential ATO attention they may receive.

 

Risk Assessment factor Score
1 2 3 4 5 6
(1)  Proportion of profit entitlement from the whole of firm group returned in the hands of the individual professional practitioner

 

 

>90%

 

>75% to

90%

 

>60%

to

75%

 

>50% to

60%

 

>25% to

50%

 

25%

or

less

(2)  Total effective tax rate for income received from the firm by the individual professional practitioner and associated entities

 

 

>40%

 

>35% to

40%

 

>30%

to

35%

 

>25% to

30%

 

>20% to

25%

 

20%

or

less

(3)  Remuneration returned in the hands of the individual professional practitioner as a percentage of the commercial benchmark for the services provided by the firm  

>200%

 

>150% to 200%

 

>100% to

150%

 

>90% to 100%

 

>70% to

90%

 

70%

or

less

When applying the risk assessment factors, you may use factors one and two only, or alternatively all the three. The third factor relies on a commercial benchmark which may be hard to ascertain.

After determining which score your arrangement falls into, you can then self assess if you are low, moderate or high risk. The lower the risk level, the less likely the ATO will analyse the arrangement and potentially proceed with an audit.

Risk Zone Risk Level Aggregate score against the first two factors Aggregate score of all three factors
Green Low 7 or less 10 or less
Amber Moderate 8 11 and 12
Red High 9 or more 13 or more

For example, an individual professional practitioner who receives 100% of the profit would fall into the category of low risk.

By assessing your risk level you can determine if a change is needed and potentially reduce future headaches from the ATO. The risk assessment and guidelines can be complicated; it is important to speak to your accountant if you are concerned about the commerciality of your firm’s arrangement or profit allocations.

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