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 These contributions along with the earnings can then be withdrawn for a home deposit in the future.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: Shaun Coelho
Email: shaun@faj.com.au

Super contributions from downsizing your home

The 2017/18 federal budget introduced a downsizing superannuation contribution scheme starting from 1 July 2018. It may be available to you if you’re over 65, your downsizing your home and you choose to contribute some of the proceeds from the sale into your super fund. The contribution is capped at $300,000 per person (so $600,000 for a couple).

The Government’s aim is to encourage the older population to downgrade their larger than needed homes to free them up for the younger generation looking to buy their family home.

The eligibility requirements are:

– You must be 65 or over (there is no maximum age limit)
– The sale contract of the property must be dated on or after 1 July 2018
– You (or your spouse) must have owned the property for 10 years or more prior to sale
– The home must have been your main residence for the at least 10 years
– The downsizer contribution must be contributed to the super fund within 90 days of receiving the sale proceeds (usually 90 days from settlement)

The good thing about the downsizing contribution is that it does not count towards any of your yearly contribution limits and can be made by anyone over the age of 65. Moreover, the work test is ignored for this contribution, so it is a great way for someone who is over 65 and fully retired to put more money into their super fund where they otherwise could not.

The downside is that it could affect your eligibility to receive the age pension. Age pension eligibility takes into account all financial assets including money in super, but the family home is exempt from age pension eligibility calculations. So by shifting value from a non-assessable home to an assessable super investment you may exceed the age pension asset or income thresholds and reduce your pension eligibility.

Before considering using the downsizing contribution it is highly recommended that you speak to your accountant or financial planner. This way you can confirm your eligibility for the contribution and whether it will affect your age pension.

Other related blogs:

Contributing to super – options for employees
What are the benefits of super salary sacrifice?
Allowing catch up concessional contributions

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

 

Changes to Depreciation for Rental Properties

The 2018 federal budget introduced changes to depreciation deductions in relation to residential rental properties. These changes aim to limit the ability to claim the depreciation deduction to the investor who initially purchased the asset.

Previously property investors could claim expenses for depreciation of certain items in a rental property, regardless of whether they were purchased new or second-hand.

From 1 July 2017 you cannot claim depreciation of second-hand equipment in residential rental properties if it was acquired on or after 7:30 pm on 9 May 2017. This means that if you entered into a contract to purchase a property prior to 9 May 2017, as per the previous rules you can continue to claim depreciation deductions on any pre-existing assets in that property. However if purchased after the date, you must have purchased the item new and not second-hand to be able to claim depreciation on the asset.

Additionally, you cannot claim depreciation on items installed on or after 1 July 2017 if they has ever been used for a private purpose. Therefore properties which have been lived in and turned into an investment property by their owners before 1 July 2017 are not affected, and owners can continue to claim plant and equipment depreciation.

Plant and equipment items are assets that can normally be easily removed or relocated, such as floor coverings, appliances and air-conditioning.

Any investor who purchases a brand new property can continue to claim depreciation for plant and equipment items as normal. Similarly depreciation can still be claimed on eligible new assets regardless of when the property was purchased.

The legislation states that these changes will not affect depreciation of plant and equipment for non-residential/commercial properties. The changes will also not apply to assets held in residential properties owned by an entity carrying on a business of property investing, or an excluded entity being a corporate tax entity, superannuation plans other than a Self-Managed Super Fund, public unit trust, or a managed investment trust.

The changes will not affect the ability to claim capital works deductions, which are the deductions on fixed items and structural improvements such as new kitchens and bathrooms.

However when purchasing second-hand assets, the cost of the plant will form part of the cost base of the property disposed and by extension will reduce the capital gain tax liability upon sale.

Other related blogs:

 

Author: Danielle Pomersbach
Email: danielle@faj.com.au

 

 

CGT Main Residence Exemption and Moving Overseas

What is the CGT main residence exemption?

Broadly, the CGT main residence exemption allows homeowners to pay zero capital gains tax (CGT) where profits are made upon selling their primary place of residence (their home).

The CGT main residence exemption rule also provides a partial exemption from CGT if the dwelling was the individual’s main residence for only a part of the ownership period i.e. if the property was used to produce assessable income like rent.

In scenarios where individuals do not treat any other home as their main residence they may be able to treat their previous home as their main residence for up to 6 years beyond when they moved out if their main residence is rented out or an unlimited amount of time if the home is left vacant.

What’s changing for foreign residents?

In the 17-18 Federal Budget the government announced changes to prevent Australian home owners who are deemed to be foreign residents at the time of sale from accessing the CGT main residence exemption. The change is not yet law at the date of this blog. If the law is passed the exemption can still be accessed if you sell your home on or before 30 June 2019 so long as the property was not purchased after the 9th of May 2017.

If you acquired the property after that date you will be subject to the new rules regardless of whether or not you sell before 30 June 2019 (assuming the law is passed).

What defines a foreign resident?

For the purpose of the legislation ‘foreign resident’ means someone who is not a tax resident of Australia. Foreign residents or those living outside of Australia including Australian Citizens and Permanent Residents should seek professional advice as to whether or not these changes affect them.

Pro tip:

If the law passes, and you are already or it is likely that you will become a foreign resident in the future it may be worthwhile considering selling your primary residence before 30 June 2019 rather than after, to benefit from the main residence exemption.

Further reading

Other related blogs:

Author: Joe Siragusa
Email: joe@faj.com.au

Do I need to pay payroll tax?

Payroll tax is one of those taxes that can slip under the radar of small businesses. Employers don’t need to pay this tax until their wages reaches a threshold, and then the onus is on the business to register and pay the tax.

Payroll tax is a state and territory tax based on the taxable wages you pay as an employer. Types of payments defined as ‘taxable wages’ include salaries and wages, allowances, fringe benefits and super contributions.  A common misconception is that contractor payments are not included in taxable wages. However, if there is an employee/employer relationship that exists between a contractor and their client then the contractor payments may be included. Generally, if the contractor is providing predominantly labour only and is being paid an hourly rate, it is likely that these payments will be considered taxable wages and will be assessed for payroll tax.

Not all businesses with employees are required to pay payroll tax. There will only be a payroll tax liability where taxable wages exceed the relevant thresholds in the state or territory you are employing from (or in some cases where your employees perform the work). The current Western Australian threshold is $850,000 per year at which point a tax rate of 5.5% applies. Other states’ thresholds can be lower; for example South Australia’s threshold is $600,000 annually, so it is important to be aware of the different state and territories’ thresholds each year.

Payroll tax is self-assessed which means employers have the responsibility of assessing if they are liable to pay the tax. Employers should check with the revenue office in the state or territory they employ from and assess the threshold that applies. If you are over the threshold you will need to register for payroll tax in the state or territory and lodge a payroll tax return. Payroll tax is generally lodged and paid monthly and then reconciled and adjusted annually based on the full years wages.

Even though it is a self-assessed tax, the state and territory revenue departments conduct regular audits to assess if the correct payroll tax has been paid. They also receive information from other sources which can prompt them to audit a taxpayer such as a large salary and wages or contractors amount reported in an employer’s tax return.

Pro tip:

Most types of wages payments are assessable as taxable wages but look out for exemptions for workers compensation receipts, disability wages, certain apprentices and trainees and parental leave.

For more information visit www.payrolltax.gov.au or call us on 93355211 for assistance with any payroll tax queries.

Related blogs:

What is single touch payroll?
Do I need to pay super for contractors?
Making sense of superstream for employers

 

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

How do I register a business name?

Registering a business name is one of the fundamental steps in starting a new business. Before you register a business name, you will need to obtain an ABN through the Australian Business Register. Australian Securities and Investment Commission (ASIC) also recommends you apply for an AUSkey, as it allows you direct access to ASIC and the Tax Office however, it is not essential to enable you to register a business name.

In order to register the business name, you need to know if your desired name is available. You can find out on the ASIC Connect website by searching the Business Names Register. If your name is already registered, then you will need to come up with a different name that is available. Once you have found a name that is available with ASIC, you should check with IP Australia to ensure that the name is not a trademark.

Registering a business name can take between 15 to 20 minutes. Before you commence ensure you have your ABN and the address of your proposed business. To commence the registration log in or sign up to ASIC Connect.

Once you have logged in, go to the Licences & Registrations tab at the top of the page and select apply for Business Name Registration. You will then need your ABN or ABN reference number to link your business name to the business number. On completion of this step, you will be required to confirm that your business name is available.

ASIC then requires you to provide the addresses for the services of documents, principle place of business address and an email address. It is also mandatory to declare that you are eligible under the Corporations Act 2001 to manage a corporation and eligible under the Business Names Registration Act 2011 to register a business name. You are able to secure your business name in the final step by paying for the registration.

Once your business name appears on the ASIC Business Name Register you will now be ready for trading.

Pro Tips:

  • You can register your business name for either one or three years, please note different fees apply
  • If you choose to trade under your own name as a sole trader e.g. Brianna Barrett, you are not required to register a business name.

Author: Brianna Barrett
Email: brianna@faj.com.au

Contributing to super – options for employees

If you are an employee, salary sacrificing to super is an attractive option to boost your super balance, as well as getting a tax saving. Though did you know that if you salary sacrifice to super, you could be missing out on part of your super guarantee?

The super guarantee is a compulsory system of superannuation that employers pay on behalf of their qualifying employees. Employers are obligated to contribute 9.5% of their employee’s salary or wage into super. As well receiving the super guarantee, some employees choose to make super contributions through a salary sacrifice agreement. However, an issue that some employees face is that their employers do not pay the super guarantee on their entire salary – they only pay the super guarantee on their reduced salary (their salary less the salary-sacrificed amount). This is where some employees miss out on part of their super guarantee.

Luckily, there is another option for employees. As of 1 July 2017, employees are able claim a deduction for personal super contributions they make to their superfund. If employees choose to do this rather than salary sacrifice, they will still reduce their taxable income, but they also will receive the super guarantee on their total salary (which may not be the case if you salary sacrifice to super).

It is important to note that your employer may not be obligated to pay the super guarantee on your entire salary if it does not state that they must do so in your salary sacrifice agreement. If you want to know whether you are receiving the super guarantee on your entire salary, check with your employer or your payroll department.

Pro Tip:
Be careful of how much you contribute to super – the contributions that you claim as a deduction will count towards your concessional contributions cap, and so does the 9.5% super guarantee. If your combined super contributions exceed the $25,000 cap, you will be liable to pay extra tax.

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

Record keeping for small business

It’s never too late to start a good record keeping system for your business. It’s an important part of being a small business owner and will help you to ensure you’re meeting your tax obligations.

Benefits of record keeping

While it can be tedious, there are many benefits to keeping good records.

It can help you to:
• keep track of your business’ health, so you’re able to make sound business decisions
• prepare your tax return more easily
• manage your cash flow
• demonstrate your financial position to banks or other lenders.

The legal requirements for keeping business records

Under Australian tax law you must keep business records:
• for a minimum of five years or longer after the record is created, updated or the transaction is completed (whichever is most recent)
• in English or in a form the Australian Taxation Office (ATO) can understand.

Note that records relating to the purchase of capital gains tax (CGT) assets must be held for at least five years after the sale of that asset.

Companies may be required to keep records for seven years in accordance with the Corporations Act.

Storing records electronically

You’re able to store your records electronically, but you must make sure they are:
• a true and clear copy of the original
• kept for the minimum required periods
• able to be reviewed by the ATO at any time.

The records must also be on a computer or device that:
• you have access to (including all passwords)
• is backed up in case of computer failure
• allows you to control the information that is processed, entered and sent.

The tax records you have to keep

You will need to keep records to help you prepare your business activity statement (BAS), and annual income tax return. Depending on your tax obligations you may need to keep other records as well.

Here’s a list of some of the tax records that small business owners may have to keep:
• income tax and GST

  • sales records
  • purchase/expense records
  • year-end income tax records

• banking records
• payments to employees and contractors
• PAYG withholding for business payments
• fuel tax credits.

What to do:

Author: Jasmina Nesic
Email: jasmina@faj.com.au

Franking credits – what are they?

If you have ever invested in the stock market, it is likely you have come across franking credits. Whether it be an amount on a dividend statement you notice doesn’t hit your bank account, or a refundable tax offset you see on your tax return. What does it actually mean and how does it affect you?

Why does the dividend imputation system exist?
A dividend imputation system is where some or all of the tax liability for a company is transferred to its shareholders in the form of a franking credit. The franking credit accompanies a dividend, which represents earnings by the company. The purpose of franking credits is to stop company profits from being taxed twice, so that whoever eventually receives the profits will be taxed at their own marginal tax rate.

How does it work?
Most companies pay tax on their profits at 30%. The company can choose to either reinvest their after tax profits back into the business or to pay some or all of these profits out to its shareholders as a dividend. The shareholder will initially receive the after tax amount (maximum of 70%), as 30% would have being paid by the company as tax. For the shareholder, the tax treatment is that the dividend is grossed up (imputed back to 100%) and then included as in the shareholder’s tax return and treated as ordinary income. The shareholder is assessed at their marginal tax rate and receives a credit for the franking credit. So if the shareholder’s marginal tax rate is less than 30% the shareholder is better off (from a tax perspective).

Why did I not get my franking credits refunded?
If you are in a higher tax bracket than the company, you will have to pay the additional tax on the dividend that the company hasn’t paid. For example, if you receive a dividend fully franked at 30% (that is the company has paid 30% tax on the earnings already), and you are a higher income earner in perhaps the 45% tax bracket, you will have to pay an extra 15% tax on the dividend.

Why do some dividends not have a franking credit?
If you receive an unfranked dividend, this means the company has not paid tax on the money you are receiving. You are more likely to receive an unfranked dividend when you invest in companies that do not necessarily pay much tax, as they have more deductions available to them. Companies can only distribute franked dividends if they have paid enough tax previously. There is also the possibility of receiving a partially franked dividend, which occurs when the company hasn’t paid enough tax to be able to pay a fully franked dividend.

I don’t need to lodge a tax return, am I entitled to a refund for franking credits?
If you are wanting to do this yourself, the easiest way is to go through your myGov account online. Alternatively, you can obtain an “Application for refund of franking credits for individuals” through the ATO website, before lodging this either by phone or post to the ATO. There is also an automated refund process that is being piloted by the ATO where a selection of taxpayers who applied for a refund in the previous year will be automatically issued a refund based on information reported to the ATO and the relevant share registries.

 

Author: Jake Solomon
Email: jake@faj.com.au

What is the PAYG instalments system?

The Pay As You Go (PAYG) instalments system is a program where regular payments are made to prepay tax on expected annual income tax liability on business or investment income. It only applies if you earn income over a certain amount.

PAYG instalments are based on tax payable as per your previous year’s tax return lodged. Individuals (residents) and trusts will need to pay instalments if they reported $4,000 or more of gross business and investment income in their previous tax return with some exceptions:

• The tax payable on your latest notice of assessment is less than $1,000
• Your notional tax is less than $500
• You are entitled to the seniors and pensioners tax offset
Non-residents must pay instalments if they reported $1 or more of gross business and/or investment income.

There are two options to calculate the amount to pay: the first option is to calculate by instalment amount, where the amount payable is calculated by the ATO. The second option allows you to calculate the amount yourself using the instalment rate provided by the ATO and your instalment income.

If you believe your instalment rate or amount does not represent your current circumstances, you can make it higher or lower by varying it.

For assistance with lodging or varying PAYG Instalment notices, contact us at FAJ on (08) 93355211.

Author: Elena Grishna
Email: elena@faj.com.au