What are the benefits of super salary sacrifice?

Salary sacrificing is an arrangement between an employee and their employer whereby part of the employee’s salary is sacrificed for benefits of a similar value. When you salary sacrifice superannuation, you are electing to have part of your salary paid to your superfund instead of receiving this amount as wages. In doing so, you are making before-tax super contributions to your superfund, referred to as concessional contributions.

A major benefit of salary sacrificing super is that you pay less tax on the sacrificed amount. For example, say you are contemplating sacrificing $10,000 of your salary to super. If you salary sacrifice this amount, the $10,000 will be treated as a concessional contribution and therefore will be taxed in your superfund at a rate 15%. If you decide against salary sacrificing, the $10,000 will be taxed as ordinary income at your marginal tax rate, which depending on your income, could be as high as 47%. This means you could potentially have a tax saving of up to 32%. So not only are you boosting your retirement savings when you salary sacrifice super, you are also paying less income tax.

Salary sacrificing to super is more beneficial to individuals with middle to high incomes. If you are in a low income tax bracket, there may be minimised or no tax savings. The downside to salary sacrificing super is that you will not have access to that money until you reach your preservation age and/or meet a condition of release, so it may be more as you get closer to retirement age.

Individuals with incomes of over $250,000 for the 2018 financial year will pay and extra 15% on their concessional contributions due to Division 293. This means any amount sacrificed to super will be taxed at 30%. Although these individuals will be paying more tax on their concessional contributions, they still benefit from salary sacrificing to super as their marginal tax rate would be 47% on ordinary income, meaning they have a tax saving of 17%.

Pro Tip #1:
Concessional contributions include your employer’s 9.5% super guarantee contributions to your superfund as well as your own salary sacrificed contributions. Be aware that the combined total of these cannot exceed $25,000 for the 2018 financial year.

Pro Tip #2:
Another change in the 2018 financial year is that employees can now claim a tax deduction for after tax super contributions within the $25,000 cap. This allows you to make the decision closer to year end and can help with tax planning.

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

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What can I claim in my tax return without receipts?

Tax time can be a chaotic period, so finding your receipts for work related deductions can be a huge hassle. Fortunately, there are some legitimate work related deductions that can be claimed without proof of receipt. Taxpayers may be entitled to claim the following:

Up to 5000 kilometres of work related travel
This might include carrying bulky tools and travel required out of office by your employer.

Laundry and maintenance
Maintenance of work related clothing such as compulsory uniform, protective clothing and occupational specific clothing may be claimed to a maximum of $150 without proof of receipt.

Home office expenses
You may be entitled to claim for the costs of work you have done at home. If so, then simply record the amount of hours worked per week, multiply it by the amount of weeks worked during the financial year and then by a set rate (cents per hour) as set by the ATO (update – from March 2023 taxpayers must keep a written record of all hours worked from home).

Claiming work related deductions up to $300 at item D5 in your tax return
This can include any stationery or tools purchased to assist your work.

Pro tip:
Although these claims require no substantiation via receipt, the ATO still requires any claim to be genuine and incurred. The ATO may seek further information about the legitimacy of the claim. It is best to keep a record to support the basis of any claims to mitigate the risk of further investigation by the ATO.

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

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Single Touch Payroll

What is Single Touch Payroll?

Single touch payroll (STP) is a reporting change for employers that the Australian Government are currently rolling out. Essentially it is streamlined reporting from your accounting software directly to the ATO.

What this means for you the employer

From 1st July 2018, if you have 20 employees or more, you can say goodbye to end of year ATO reporting for payroll. Information typically provided to the ATO at the end of financial year such as salary and wages, pay-as-you-go PAYG withholding and superannuation must now be reported to the ATO when you pay your employees, every time that you pay them.

How can you report?

To prepare, check with your respective accounting software providers if they will be compliant by the deadline. Employers may need to consider updating their accounting software to report through STP. Most accounting software platform providers like Xero, MYOB and Quickbooks are currently working to be compliant by the deadline and are keeping customers updated on their progress.

Pro Tip:

The Australian Government has announced it will expand Single Touch Payroll to include employers with 19 or less employees from 1 July 2019, subject to legislation being passed in parliament.

Not sure where to start?

Contact one of the friendly team at FAJ Bookkeeping to assist with accounting software compliances.

Author: Jasmina Nesic – Senior Bookkeeper
Email: jasmina@faj.com.au

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Changes to rental property deductions

The 2017 federal budget introduced a number of changes to rental property deductions. The proposed changes are to prevent taxpayers from exploiting certain deductions and also to decrease the impact of negative gearing.

From 1 July 2017 deductions for travel expenses for inspecting and maintaining a residential property will not be allowed. This includes all types of travel whether it be via car to collect rent or travel interstate to the property for an inspection. This proposed change will only affect travel by the owner. Costs undertaken by a property manager to inspect the property is still deductible.

Also as of 1 July 2017 there will be a limit to plant and equipment depreciation deductions incurred by investors in residential real estate. Investors who purchase plant and equipment after 9 May 2017 will be able to claim depreciation over the useful life of the asset (as per normal). However, after 9 May 2017 you must have purchased the asset yourself to be able to claim depreciation on the asset. This means if you received the asset on purchase of the property and the previous owner paid for the asset, you can no longer claim depreciation on those assets. This proposed change only applies to ‘plant & equipment’ items, this usually means the asset can be easily moved and is not fixed to the property e.g. dishwasher & ceiling fans.

The proposed two changes will only apply to residential properties. Travel to non residential investment properties (business facilities, factories) is still claimable as before.

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

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Employee travel expenses

Employees can claim a deduction for travel expenditure if they incur the expense in gaining and producing their assessable income and if the expense is not of a capital, private or domestic nature.

To work out if you might be eligible to claim a tax deduction for your employee travel expenses answer the below questions:
a) Do your work activities require you to undertake the travel?
b) Are you paid directly or indirectly to take the travel?
c) Are you subject to the direction and control of your employer whilst you are travelling?

If you answered yes to all of the above questions, then you are considered to be undertaking work related travel from a tax perspective.

The types of expenses you can claim for work related travel include meals, accommodation expenses and the cost of transport whilst undertaking the travel such as taxis, ubers and parking expenses. It is essential to keep your receipts of all such expenses in order to claim these in your tax return.

PRO TIP: Travel taken to commence work is considered to be preliminary to the work and therefore not deductible. This is one of the common misconceptions when it comes to travel deductibility. Travel taken by FIFO workers usually falls into this category.

Paid a travel allowance while away?
If you are paid a travel allowance that is expected to cover your expenses while travelling you may be able to rely on the tax offices daily rates for food, accommodation and incidentals without needing to maintain original receipts however only under the circumstance that you are legitimately incurring those expenses.

PRO TIP: Keep a record of the days spent away and the locations you traveled to if you were paid a travel allowance and even if you have kept all your receipts we can determine which method will net you the highest claim.

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

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Allowing catch up concessional contributions

Tax deductible contributions made into super are known as concessional contributions and are subject to an annual limit (cap). Concessional contributions include those made by your employer under the super guarantee system, contributions made as part of a salary sacrifice, or personal contributions where you are entitled to claim a tax deduction.

From 1 July 2017, the concessional contributions cap has been reduced to $25,000 for all individuals, regardless of their age. Even individuals aged 50 or more (who were subject to a $35,000 annual concessional contributions cap under the old rules) will now be subject to the lower $25,000 concessional contributions cap.

Additionally, effective from 1 July 2018 – if your superannuation account balance (or combined balances if you have more than one superannuation account) is $500,000 or less at the end of a financial year, then you will have the opportunity to utilise the unused portions of your concessional caps from previous years (up to 5 years worth) in the following financial year, or future years. These are known as catch up concessional contributions.

Carrying forward unused portions of concessional contributions may benefit many individuals, especially those who have had breaks in employment and wish to catch up on previous years.

For example – Jessica has a combined superannuation balance of $200,000 but did not make any concessional contributions in the 2018/2019 financial year as she took time off work to care for her newborn child.

In the 2019/2020 financial year she has the ability to contribute up to $50,000 of concessional contributions into her superannuation account – $25,000 under the annual concessional cap and $25,000 from her unused 2018/2019 cap which has been rolled over.

PRO TIP:

Catch up concessional contributions can be particularly effective to reduce income tax payable in higher income years – for instance when a capital gain exists following the sale of an asset.

Author: Natasha Woodvine
Email: natasha@faj.com.au

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The sharing economy and taxation

What is the sharing economy?
The sharing economy connects buyers (users) and sellers (providers) through a facilitator who usually operates an app or a website. There are many sharing economy websites and apps.

Common platforms/situations include:
• Uber and other ride sourcing services
• Uber Eats
• Airtasker
• Deliveroo
• Air BnB
• Stayz
• Privately renting out a room or your whole home
• Renting out parking spaces
• Creative and professional services – eg graphic design or creating websites

What are your income tax obligations?
If you use any of the above platforms or have similar situations you are obliged to declare the income in your tax return. The flipside to this is when you declare the income you can also claim expenses incurred to produce this income.

Do I need to register for GST?
If your annual turnover is below $75,000 you do not need to register for GST. If your turnover is, or is projected to be, $75,000 or more per year, you will need to get an ABN and register for GST. However an exception to this rule is if you are carrying on a ride sourcing service. These are considered a taxi service and subsequently you must register for GST as soon as you start operating, i.e. from the first $1 you earn.

What deductions can I claim?
You can claim income tax deductions relating to income you earn.
To claim a deduction:
• you must have spent the money and not been reimbursed
• the costs must relate to doing your job and can’t be a private expense (such as travel from home to the job)
• work out how much of the total expense is for your business and how much is for personal use
• you must keep appropriate records to prove your claim.

Any fees or commissions charged by a sharing economy facilitator can be claimed as a deduction.

Other deductions will depend on the goods or services you are providing.

What records do I need to keep?
• statements showing income from your facilitators
• receipts of any expenses you want to claim deductions for
• logbooks of odometer readings

Consider using the FAJ app to maintain digital copies of deductions. This can be downloaded from the Play Store and the App Store.

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

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Reducing FBT with the otherwise deductible rule

Non-cash benefits given to an employee by their employer are known as fringe benefits. These benefits are generally subject to Fringe Benefits Tax (FBT) which the employer pays but will often factor into the employee’s package. However there are exemptions and concessions that can reduce or eliminate the amount of FBT payable. An example of one of these concessions is known as the otherwise deductible rule.

The otherwise deductible rule allows the FBT to be reduced to the extent that the employee would have been entitled to claim a tax deduction for the benefit, had the employer not paid for it.

Examples of benefits that the otherwise deductible rule might apply to include expense payments, loan interest, airline transport, board, property, and residual fringe benefits. For instance, your employer might pay for the interest on a loan that relates to your rental property.

In most cases, to be able to utilise the otherwise deductible rule a logbook or some other declaration is required to be maintained and provided to the employer for lodgment of the annual FBT return.

The true benefit of using the otherwise deductible rule can come about in a situation where an employee has a high amount of negatively geared property or investments. Investment losses are added back by the ATO for the purposes of Div 293 tax, health insurance rebates and a number of other income thresholds, which can result in a higher tax assessment.

In some circumstances an employee may be able to save tax by salary sacrificing wages and asking their employer to pay interest on an investment loan. This results in no change to your taxable income, but eliminates the “add-backs” for the adjusted income used for the various thresholds.

PRO TIP:
A crucial part of the application of the otherwise deductible rule is that the tax deduction must be a once only deduction – meaning a deduction spread over a number of years won’t qualify. Therefore if an employee would have claimed a deduction for depreciation for a benefit provided by their employer, the otherwise deductible concession won’t be available for that benefit.

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

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Medicare levy increase

Changes will be made to the Medicare Levy starting from July 1, 2019 when it will rise from the current 2% to 2.5%. The Medicare levy increase will raise an estimated $8.5 billion across the first three years from induction to ensure the National Disability Insurance Scheme is sufficiently funded.

However, there will be continued relief for low income earners. Increases to the low income threshold (where no levy is payable) are as follows, $21,655 for singles, $36,541 for families and $34,244 for seniors (effective from the 1st of July 2017). These changes are to adjust for increases in CPI.

Pro Tip:
Looking to reduce the impact of the Medicare levy increase? If you can bring forward income such as capital gains prior to July 1, 2019 or hold expenses till after July 1, 2019 you may be able to avoid the additional levy.

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

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Changes to small business concession thresholds

As of the 1st of July 2017, several of the small business concession thresholds that allow small businesses access to a range of concessions have increased, allowing more businesses to take advantage of various small business tax concessions.

The turnover threshold level used to determine whether you are considered to be a small business entity has increased from $2 million to $10 million for the 2017 financial year. An entity is considered to be a small business if the aggregated turnover for the current year is actually or likely to be less than $10 million, of if the turnover was actually less than $10 million in the previous year. You must also satisfy the criteria of having carried on a business during the year to be recognised as a small business.

Small businesses have access to the simplified depreciation rules if their turnover is under $10 million.  This means they can immediately write off the value of assets up to $20,000 (until 30th June 2018). They also have access to lower company tax rates, simplified trading stock rules and an immediate deduction for prepaid expenses.

However the $10 million threshold doesn’t apply for all available concessions. For example access yo the small business CGT concessions are only available to small businesses whose turnover is under $2 million.

Also small businesses that have an aggregated turnover of $5 million or less are entitled to claim the Small Business Income Tax Offset. This offset reduces the amount of tax payable on business income. The rate of this offset has increased from 5% to 8% in the 2017 financial year, but it is still capped at $1,000.

Pro Tip:
If you are a sole trader or partnership and the income you received is considered to be Personal Services Income, you are not eligible for the Small Business Income Tax Offset, unless you are considered to be a Personal Services Business.

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

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