As the end of another the financial year approaches, it’s time to consider strategies to boost your super. Whether you’re planning for retirement or simply aiming to secure your financial future, taking action before the financial year concludes may have significant benefits. Here are some last-minute tips to boost your super, either for yourself or your spouse:

  1. Extra Contributions: One of the simplest ways to increase super is by making additional contributions from your savings. These contributions can be made as concessional (before-tax) contributions or as non-concessional (after-tax) contributions. Be mindful of annual contribution caps to avoid penalties.
  2. Salary Sacrifice: You can speak with your employer about setting up a salary sacrifice arrangement. This involves redirecting a portion of your pre-tax salary into your super fund. Not only does this reduce your taxable income, but it also boosts your superannuation savings over time.
  3. Spousal Contributions: If your spouse earns less than $40,000 per year or isn’t working, you may be eligible for a tax offset by making contributions to their super fund. This can be a tax-effective strategy to build retirement savings as well as support your partner’s financial security.

By taking advantage of these last-minute tips, you can give your superannuation a significant boost before the end of the financial year. Planning ahead and making informed decisions now can pave the way for a more secure and comfortable retirement in the future.

This blog is provided as an information service only and therefore does not constitute, and should not be relied upon as financial product advice. None of the information provided takes into account your personal objectives, financial situation or needs, and you will need to make your own decision about how to proceed. Alternatively, for financial product advice that takes account of your personal objectives, financial situation or needs, you should consider seeking financial advice from a licenced financial advisor.

Related blogs:

New Super contribution limits
What happens if I make excess contributions to super?
How can you access your super?

Author: Jesper Lim
Email: jesper@faj.com.au

 

With the Fringe Benefit Tax year-end upon us we thought we’d share with you what’s new in FBT.

Employer cars repaired at a workshop.

Does an employer provide a car fringe benefit to an employee on a day which the car is garaged at a mechanic’s workshop for repair?

ATO factsheet, Fringe Benefits Tax QC71121 has confirmed that a car being held at a workshop for “extensive repairs” is not being applied for private use and is not held by the provider during these periods, therefore no fringe benefit will occur in relation to these days.

What does this mean for me?

As employers, the number of days provided can be reduced if using the statutory method or if using the operating cost method, any costs relating to the vehicle during the repair period can be excluded. This includes a proportion of annual expenses such as insurance and registration.

Extensive repairs relate to where the car is being repaired after an accident or where the car is currently unroadworthy and housed at the mechanic.  This concession does not extend to minor repairs or routing servicing as the user still has the ability to cancel the repairs and drive the car away.

Logbook requirement

The ATO has confirmed that the operating cost method may still be used where a valid logbook has not been maintained for the car.  A private percentage of 100% can be used to compare with the statutory formula and the lower may be used.  This may produce a lower FBT liability if the car was purchased a number of years ago or the running costs of the car are low.

FBT Trap – cars with signage

Many businesses now provide cars with custom signage, allowing the business to be advertised when the car is being driven or in a public area.  Confusion stems relating to whether this is considered advertising and a business use of 100% can be used in relation to FBT.  ATO have updated guidance confirming that private use is “everything else other than the exclusive course of working, running a business or otherwise earning income.”  Therefore these cars have a dual purpose and will still be available for private use under the definition in relation to FBT.

Electric Cars & Plug-in Hybrids

Qualifying electric cars are exempt from FBT from 1 July 2022. This is a huge exemption and benefit for employers in terms of FBT, but don’t get too excited too quickly.  Whilst this is a great development, the compliance requirements surrounding these vehicles remain.  Employers are still required to include the value of an exempt FBT electric car when determining if an employee has a reportable fringe benefits amount to be declared on their payment summary.

The ATO has released PCG 2024/2 to provide a short cut method in determining the cost of charging an electric car at home, being:

Electric vehicle home charging rate x total number of kilometres travelled by the car in the FBT year.

Note that:

  • The rate for 2023 and later years is 4.20 cents per kilometre
  • Employers must disregard any costs at a commercial charging station
  • Plug in hybrids cannot use this method
  • This method is not compulsory

Whilst electricity costs are a car expenses the provision of the electric vehicle charging station itself will be regarded as an expense payment benefit and is subject to FBT.

Crackdown on utes and other work-horse vehicles

Eligible vehicles are exempt from FBT if regarded as a work-horse vehicles and any private use is limited to ‘work-related travel or is ‘minor, irregular and infrequent’.

But what is limited private use?

  • Travel to and from home
  • Travel incidental to employment related duties (eg. Stopping for coffee for a business meeting)
  • Minor, irregular and infrequent.

ATO’s PCG 2018/3 guides that total private use of the vehicle (other than home to work) in the FBT year should be no more than 1,000kms with no single private journey exceeding 200kms.

The ATO data matching program has been extended to monitor registration records until the end of 2025 regarding makes, models, engine size and carrying capacity of vehicles.

Whilst special records are not required to ensure eligibility of the above.  It is advised that odometer records are kept to ensure that usage is within the expected private use between home and work travel during the period.

Any vehicles not meeting this criteria will have a residual fringe benefit.

Other related blogs:

Tax consequences of buying a work vehicle
Deductibility of electric vehicle used for work
Claiming vehicle expenses using a log book method

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

 

 

Inheriting property can be quite an emotional and stressful experience, which many people will encounter at some point in their life. Whether the property is a family home or investment property, understanding the tax implications for such a valuable asset can be crucial in making sure it is handled effectively.

Receiving property doesn’t trigger a CGT (Capital Gains Tax) event, this occurs once the property is disposed of, either being sold, transferred or gifted. When the property is disposed of, the capital gain or loss is generally calculated by comparing the cost base and the selling price, although there are some CGT exemptions and other factors that can affect the end result.

Calculating the Cost Base

The cost base of an inherited property is affected by whether the property was the deceased’s main residence for the whole period of ownership, and periods the property was rented whether for the whole time, or for a portion of ownership.

If the property was the deceased’s main residence for the whole period of ownership, the cost base becomes the market value at the date of death, based on a valuation by a licensed valuer. The property can then be sold free of CGT implications if one of the following are satisfied,

  1. The property is sold within 2 years of the death, even if it was rented in the meantime.
  2. The property is used only as a main residence by one of the following, (be mindful that a person can usually only have one main residence at a time):
    1. A spouse of the deceased immediately prior to death
    2. A person who was offered to live at the property as part of the will
    3. A beneficiary

If the property was not the deceased’s main residence for the whole period of ownership, there will be CGT implications that need to be considered. The cost base for the inherited property can vary depending on when the deceased purchased the property,

  1. Prior to 20 September 1985 – market value at date of death
  2. After 20 September 1985 – the cost base of the deceased will be inherited

Partial exemptions may apply for properties inherited that weren’t a main residence. This suggests that you can apportion the gain by the non-main residence days divided by the total ownership days.

The ATO provides a checklist and step by step walk through which might assist with your own personal circumstances.

Given the complexity around the tax laws for inherited property, it is advisable to seek professional help from your accountant.

Related blogs:

Tax when an individual passes away

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

 

 

 

 

Determining whether you are running a business or a hobby can be difficult. Generally, a hobby is an activity performed in your spare time with the single purpose of enjoyment.  If, however, the hobby earns income and begins to make a profit, should it be considered a business?

Whether a taxpayer carries on or business is not defined by law, but is a question of fact and degree. Unfortunately, there is no single factor when making this determination, but the following points need to be considered:

  1. Do you intend to be in business?
  2. Have you decided to operate in a business-like manner? This may include an application for a business name or ABN, writing a business plan or opening a bank account.
  3. Do you intend or genuinely believe you will make a profit from your activities?
  4. Is the activity repeated and continuous?
  5. Have you obtained relevant licences and/or permits?
  6. Are you advertising your goods and services to the public?
  7. Do you have a business premises?

If the answer is yes to many of the above, then the likelihood is that you are considered a business for income tax purposes, which of course comes with certain obligations.

There are different types of business entities to choose from, and deciding which best suits your situation will determine what you need to report and how you lodge a tax return. There may also be restrictions on your ability to utilise any losses made, or offset these against other personal income.

As a business you are required to record all items of income and expenditure and regardless of whether a profit has been made, report this to the Australian Taxation Office by lodging an income tax return.

Businesses can be registered as Sole traders, Partnerships, Companies or through Trusts.

Your accountant will be happy to discuss your requirements with you, and together determine which entity best suits you and guide you through all ATO and business requirements.

Further references:

https://business.gov.au/planning/new-businesses/difference-between-a-business-and-a-hobby
https://www.ato.gov.au/businesses-and-organisations/starting-registering-or-closing-a-business/starting-your-own-business/are-you-in-business

Other related blogs:

Content creators – Income and GST considerations
What is a non commercial loss?

Author: Jessica Jones
Email: jessicaj@faj.com.au

Australia boasts a tough taxation system designed to ensure compliance and fairness. The Australian Tax Office (ATO) plays a pivotal role in maintaining the integrity of this system by conducting tax audits when necessary.

Understanding Tax Audits:

Our tax system is primarily one of self assessment and disclosure. A tax audit is a formal examination of a taxpayer’s financial information to verify the accuracy of their lodged tax returns and compliance with tax laws. The ATO conducts audits to identify discrepancies, errors, or instances of tax evasion. It’s essential to note that being selected for an audit doesn’t necessarily imply wrongdoing; it’s part of the ATO’s routine efforts to maintain the integrity of the tax system.

Initiating an Audit:

A tax audit can be triggered by various factors, including red flags in a taxpayer’s financial data, industry-specific benchmarks, or random selection. Additionally, the ATO may target specific industries or taxpayers based on its risk assessment processes.

Notification and Documentation:

If you or your business is selected for an audit, the ATO will issue a formal notification. This notification outlines the scope of the audit, the information required, and the timeframe for response. It is recommended to respond promptly and cooperate fully with the ATO throughout the process.  Sometimes rather seemingly benign questions are really loaded questions that may initiate further investigation.  While not essential it can be beneficial to have your tax agent assist and guide you through the audit.  It is worth checking if you have separate tax audit insurance or even coverage under your general business insurance policy.  Gathering and organizing all relevant documents, such as financial statements, receipts, and invoices, will be essential.

Resolution Options:

Following the audit, the ATO will provide the findings and propose adjustments if necessary. Taxpayers have several options at this stage, including accepting the ATO’s findings, negotiating an agreement, or disputing the audit results through formal objection and appeal processes.

Penalties and Consequences:

Non-compliance with tax laws can result in penalties and legal consequences. Understanding your rights and responsibilities during the audit process is essential to mitigate these risks. It is advisable to seek professional advice to navigate the complexities of tax laws and regulations.

Other related blogs:

ATO penalties for failing to withhold PAYGW for employees – What are the risks?
What can I claim in my tax return without receipts?
What company debts can directors be personally liable for?

 

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

Considering the modernity of digital content creation as an income-producing activity, it’s not unusual to encounter uncertainty among content creators regarding their tax obligations. In addition to its unprecedented nature, confusion arises due to the fact content creation is a rather unique source of income, as portrayed by the many ways a creator can generate profits.

In addition to the standard, monetary method of producing income (etc. payments from social media platforms, advertisements, and appearances), creators are also required to report non-monetary income received during the financial year, including but not limited to gifts of assets and/or experiences such as…

  • Cosmetics, accessories, gaming consoles
  • Vacations i.e., flights, accommodation
  • Admission fees to events
  • Cryptocurrency and shares

As income tax returns are numerical in nature, the Australian Taxation Office (ATO) expects content creators to appraise all non-monetary gifts at their market value when preparing their returns. For instance, products received free of charge by a content creator, are expected to be reported as income in the creator’s tax return at their retail price. Alternatively, products may be offered to content creators at a discounted rate, in which case the creator will only be obligated to pay tax on the benefit received from the discount.

Therefore, it’s prudent for content creators to exercise caution when accepting gifts of high market value, as the resulting tax liability may be harsh and without adequate cashflow to cover the liability creators may find themselves in a difficult situation…

Another important tax obligation for content creators to consider is goods and services tax (GST). GST is an additional tax of 10% charged on certain goods and services consumed or sold in Australia. Taxpayers in business are obligated to pay and report GST if their annual GST turnover exceeds $75,000. The annual GST turnover is calculated by totalling a taxpayer’s income (monetary and non-monetary) over a 12-month period and subtracting any corresponding GST on applicable income. It should be noted that non-monetary income is subject to GST and should be calculated based on the accepted market value. For example, if a gifted product’s retail value was $320, the creator should report GST on sales of $29.09 to the ATO.

Due to the global nature of the internet, content creators often source income from foreign advocates and supporters. Therefore, as the creator’s goods and services are not ‘consumed’ in Australia, its unlikely the income will be subject to GST. If a content creator cannot distinguish between foreign or Australian income, the income is taken to be taxable and subject to GST as per the ATO’s ruling.

Although foreign income is exempt from GST, it’ll still contribute to the $75,000 threshold when calculating the annual GST turnover. Content creators exceeding the $75,000 annual GST turnover threshold should register for GST immediately, and depending on their expected turnover, will be required to report their GST liabilities to the ATO either annually, quarterly, or monthly through Business Activity Statements (BAS).

We urge any content creators who are unsure of their tax obligations to please contact our office to gain assistance and peace of mind from any one of our friendly tax accountants!

Other related blogs:

 

Author: Amy Murphy
Email: amy@faj.com.au

 

What are the benefits of negative gearing?

Negative gearing refers to an investment where the investment has cost more money to hold than the income it produces before the consideration of any capital growth.  Currently an income tax benefit may be gained from negative gearing which is attractive to many when considering their investment options however it is important to understand what this concept means and the risks involved.

You may wish to make such an investment if the expected capital growth of the investment is expected to outweigh the after tax yearly cost of holding it.

What is negative gearing?

When it comes to investing, the term ‘gearing’ refers to the borrowing to purchase an asset. Negative gearing occurs when the annual costs of owning the investment outweigh the annual income it generates each year. Negative gearing results in a tax loss, which can potentially be offset against other taxable income to provide current year income tax savings.

Benefits

  • An income tax loss generated from negative gearing can be deducted against other taxable income such as salary and wages, reducing the overall taxable income for the year.  This can result in a refund or a reduced income tax payable in the annual ATO assessment.
  • It allows investors to use leverage to purchase more expensive assets than they could normally afford
  • If the investment appreciates in value in time, this could lead to a higher rate of return however it is important to note that should the investment decrease in value then the extent of the losses is also magnified.
  • Over time, it can be a way to build wealth and create an income stream under the assumption that the asset value will rise and become positively geared.
  • The income tax benefit of the loss is received each year but be aware of the potential capital gains tax which is deferred until the property is sold.  The delayed taxing point on the increase in value of the property can have a significant impact on compounding returns over time.

Pro Tip:  You need to consider whose name you purchase the asset under.  If the property is expected to generate a large negatively geared loss then it would be tempted to purchase the asset in the name of the higher income earning spouse but you also need to consider the potential capital gains tax liability when that asset is sold.

Related blogs:

Pros and Cons of negative gearing

Author: Tayla Walkinshaw
Email: tayla@faj.com.au

You have just purchased yourself a shiny new Tesla in the hopes of never again having to spend over $2 per litre of fuel. Now what? What deductions are you entitled to for this electric vehicle?

If you are an employee or a sole trader, you can either make your claim using the cents per kilometre method or the logbook method.

Cents per Kilometre Method

The cents per kilometre method is the easiest to calculate. You just claim the work distance travelled (in km) for the year up to a maximum of 5000km and multiply it by the ATO set rate for the relevant year. For example, in the 2023 financial year the ATO have given a set rate of 78 cents per km meaning you can claim a maximum deduction of $3,900 for the operating expenses of your electric vehicle for the year. When it comes to keeping records, written receipts are not required however you should still have reasonable evidence to prove how you have calculated distance claimed.

Logbook Method

The logbook method allows you to claim a deduction for your actual vehicle costs. Under this method you are required to keep a record of all vehicle expenses incurred, the total is then apportioned by your logbook percentage to calculate your deduction.

To claim under this method, you first need to keep a valid logbook.

Step one is to record your opening odometer right before starting your logbook.

Step two is to record all your work-related travel. This must include, travel date, details of travel, starting odometer, closing odometer and a total KMs travelled. You will need to do this for 12 continuous weeks.

Step three: Work out your logbook percentage.  To calculate the percentage, you will need to take a final reading of your odometer at the end of the 12-week period. We should now have 3 values. The odometer at the start and end of the 12-week period and the total work-related distance travelled. From this we can calculate the work-related percentage by dividing the work-related distance by the total distance travelled during the 12-week period.

Now you have a logbook you can claim the work related percentage of vehicle costs such as;

  • Fuel Costs (see below for Electric Vehicle rules)
  • Annual Servicing Fees
  • Any extra repairs and maintenance
  • Registration
  • Insurance
  • Interest on the vehicle’s loan
  • Depreciation (see below)

The biggest difference between traditional vehicles and electrical vehicles is that EV’s don’t require traditional fuels so how do you work out the charging costs

Electric Vehicle Recharge Costs

When it comes to claiming the costs to recharge.  If you recharge your EV from a commercial charging station, then you just keep the receipts and apply the logbook % to the total for the year identical to if you were to have fuel receipts.

However, if you charge from home, you will find that it is very difficult to calculate portion of your electricity bill is from charging your EV at home since the costs are lumped in with your household electricity costs. Because of this the ATO have provided a shortcut method to easily calculate the running costs of the vehicle. Like the cents per kilometre method the ATO provides a rate of 4.2 cents per kilometre travelled. To calculate this, you would grab your odometer reading at the start of the financial and year and another at the end of the financial year. Calculate the distance travelled and multiply by 4.2 cents. The final thing is to apply the logbook percentage to get your final figure.

When opting to use this ATO shortcut method you need to be certain that your vehicle is eligible. The shortcut method can be used for zero emission vehicles, this means that hybrid vehicles with an internal combustion engine that uses liquid fuel are not eligible for the method.

Car Cost Limit and Depreciation

If you are claiming your motor vehicle expenses using the logbook method, you can claim the work-related portion of the vehicle up to the car cost limit for that year. From July 2022 to June 2023 the limit is $64,741. For example, the vehicle you purchased was $75,000. When calculating the decline in value for the vehicle you would first have to reduce the cost of the vehicle to $64,741.

Related blogs:

Tax consequences of buying a work vehicle

Author: Matthew Prawirohardjo
Email: matthewp@faj.com.au 

 

Training and technology are often at the heart of a business’s success and may give them an edge to help them thrive in a competitive market. The Australian Government has recognised the importance of both of these concepts through the introduction of two initiatives to support small business, the Skills and Training Boost and the Technology Investment Boost.

Both initiatives allow business entities with an aggregated turnover of less than $50 million to access a further 20% deduction for eligible training and technology expenditure, and can apply to sole traders, partnerships, companies and trusts.

The Skills and Training Boost

The Skills and Training Boost applies to eligible expenses incurred from 7:30 pm AEDT on 29 March 2022 until 30 June 2024.

This further 20% deduction is only available for expenditure on external training courses that are provided by registered training providers to employees. You can check whether a training provider is registered by searching for them on training.gov.au.

The expenditure must meet the below criteria to qualify:

  • The training can be provided to employees either in-person or online
  • The training must be provided by a registered training organisation (RTO) that is not your associate or your own business
  • The expenditure must already be an eligible deduction under Australian Taxation Law
  • The expenditure must be incurred within the abovementioned dates

If your business is registered for GST, the bonus 20% deduction is calculated based on the GST exclusive amount.

You cannot claim expenses for training of non-employee business owners such as sole traders, partners in a partnership, or independent contractors. The fee must also have been charged directly from the RTO and not by an intermediary inclusive of additional commissions or fees.

There is no cap on the bonus deduction that can be claimed under the Skills and Training Boost.

The Technology Investment Boost

The Technology Investment Boost applies to eligible expenses incurred from 7:30 pm AEDT on 29 March 2022 until 30 June 2023.

There is a cap on the bonus 20% deduction that can be claimed under this initiative. It applies to total eligible expenditure of up to $100,000 per income year, meaning the maximum additional deduction available is $20,000 per annum for eligible entities.

The expenditure must meet the following criteria to qualify:

  • The expenditure must already be an eligible deduction under Australian Taxation Law
  • If the expense is incurred on a depreciating asset, it must be installed ready to use or first used by 30 June 2023. There may be exceptions for in-house software that is allocated to a software development pool.
  • The expenditure must be incurred wholly or substantially for the purpose of digitising the operations of the entity or assisting the digital operations of the entity.
  • It must be for business use. If it is a mix of private and business use, the expense must be apportioned.

If your business is registered for GST, the bonus 20% deduction is calculated based on the GST exclusive amount.

Items that may be able to be claimed should fit into the four categories below:

  1. Digital enabling items including computer hardware and equipment, telecommunications hardware and equipment, software, internet costs and systems and services that form and facilitate the use of computer networks.
  2. Digital media and marketing such as audio and visual content, web page design, web page updates, SEO fees, pay-per-click advertising, email marketing fees, photo stock commissions and music royalty fees.
  3. E-Commerce costs including goods and services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations.
  4. Cyber security expenses such as cyber security systems, backup management, monitoring services and upgrade services.

Subject to the criteria above, some of the more common eligible costs incurred by small business will be hardware costs, accounting software, app subscriptions, internet, web hosting and VOIP charges, IT support costs, and any social media or web based marketing.

Your accountant will be able to determine whether your entity, and the expenditure, is eligible for either of the above boosts and assist you in claiming the bonus deductions in your income tax return.

 

Author: Joanne Humphreys
Email: joanne@faj.com.au

 

It is an unfortunate part of life that at some point, someone close to you will pass away. It is therefore important to be aware of the tax consequences that come along with this. When an individual passes away, a legal personal representative (LPR) (AKA administrator or executor) will be appointed to manage the tax affairs of the deceased.

The LPR should notify the ATO of their appointment and of the death of the deceased, using the Notification of a Deceased Person form online. The LPR will be required to go to a post office to provide official documents for viewing, including the death certificate and either the letter of administration or evidence of probate. Probate is the process of proving and registering the last will of a deceased person, this will need to be done prior to managing their tax affairs. Once this has been done the LPR will have full authority to lodge any outstanding or future tax returns on behalf of the deceased.

The first step to finalising the tax obligations of the deceased is to ensure that all previous year’s tax returns have been lodged, and if returns were not necessary, then ‘Non-Lodgement Advice forms have been lodged.

Secondly, if in the year that the deceased passed away, they had any of the following, then a date of death tax return will be required:

  • Tax withheld from income.
  • Income above the tax-free threshold.
  • Franking credits that they wish to claim.

A date of death tax return covers the period from the beginning of the financial year in which the deceased passed, being the 1st of July, up until the date of death. The deceased’s marginal rate of tax will apply, including the entitlement to the tax-free threshold.

Finally, a trust tax return covers the period from the date of death up until the end of the financial year, being 30th June. A trust tax return will be required if any of the following have occurred in the name of the deceased:

  • Earns any amount of income above the tax-free threshold.
  • Received dividends and wants to claim franking credits.
  • Has carried on a business.

To lodge a trust tax return on behalf of the deceased, the LPR will be required to apply for a new TFN for the deceased estate.

A trust tax return will need to be lodged every year until the deceased estate is fully wound up and not earning any income. The tax rate that will apply will be the deceased’s marginal tax rate for the first three years, but if further returns are required beyond this, then higher, progressive tax rates will apply to encourage the LPR to make a genuine effort to wind up the deceased tax affairs.

Related blogs:

What happens if I die without a will?

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