Sole Trader Contributing to Super

As a sole trader you do not have an obligation to contribute money into super each year for yourself, but if you choose to contribute you may be entitled to a tax deduction.

To be eligible to claim a super deduction you need to contribute to a complying super fund and advise your super fund that you intend to claim a tax deduction equal to your super contributions.

Under current laws you also need to ensure that less than 10% of your income for the year comes from salary and wages (the 10% rule). This is tested on a yearly basis, so you can get caught in a situation where your employment income increases at the end of the financial year to the point where it disallows your contributions made earlier.

Pro Tips:

  • The easiest way to side-step the 10% issue is to salary sacrifice any wages you have to super. This is a safe way of making sure you get the tax benefit of contributing to super.
  • At the recent budget the government announced changes to scrap the 10% rule from 1 July 2017. Until then you will still need to ensure you meet these rules.

Author: Brigette Liddelow
Email: brigette@faj.com.au

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Six Year Main Residence Exemption

If you are living in your home and you need to move out, then you will have the option of treating this home as your main residence for another six years.
This is a common situation where you need to move away for work and you continue to own the home.
Best of both worlds…
You can have a situation where you rent your old home out and get the negative gearing tax benefits and also be free from capital gains tax. Not often in the world you get to eat the cake as well.

What’s the catch?
You can only have 1 residence at a time (limited exceptions apply). This means if you purchased a new home you will need to decide which one is considered your main residence. The good news is that you can make this decision when you sell either property so you can work out what provides the best tax result.

Pro Tips:

  • If you leave the home vacant and not producing income then you can treat this property as your main residence indefinitely.
  • The six year exemption can apply to the same property numerous times over your ownership period.
  • You must live in the property before this choice becomes available.
  • First home buyers- qualify for the relevant first home buyer concessions and once you have done that move back with the parents and rent out the house. You will have the tenant and ATO helping pay off your home and not pay any capital gains tax when you sell the property (good in theory but could you move back in with your parents?)

Author: Jessica Russell
Email: jessica@faj.com.au

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Home to work travel – is it deductible?

Generally the Australian Taxation Office considers home to work travel to be private and therefore non deductible.

However, there are a few exceptions:
1.    From your normal workplace to an alternative workplace while still on duty and back to normal place of work or home.
2.   Shifting places of work – e.g. regularly working at more than one site each day before returning home.
3.   From your home to an alternative workplace for work purposes and then returning to normal workplace or home.
4.   Where you need to carry bulky tools or equipment that are used for work. The requirements for this travel to be deductible include:

  • The tools or equipment are needed to complete your work
  • Your employer expects you to transport the tools or equipment
  • There is no reasonable secure storage area available at your workplace

A general guide to tell if the tools or equipment are considered bulky is if it is difficult to transport them on a bus.

You can’t claim travel if:
1.   The travel is for minor work related tasks – e.g. travel down the road to pick up newspaper for the office on the way to work.
2.   You need to drive between your home and workplace more than once a day.
3.   You are on call – e.g. your supervisor contacts you to come into work.
4.   You are travelling to work outside of normal business hours.
5.   You do some work at home.

Itinerant work – you cannot count your home as a workplace unless you carry out itinerant work. If you perform itinerant work you can claim the travel costs of driving between alternative workplaces and home.

Factor’s indicating you perform itinerant work include:
1.   Travel is a major part of your work, not just because it is convenient to you and your employer.
2.   You have various workplaces to travel to through out the day.
3.   You are continually travelling from one site to another.
4.   You are often uncertain of the location of your work site.
5.   Your employer provides you with an allowance in recognition for your continual travel between different work sites through out the day.

Pro Tip:
The ATO are targeting home to work travel claims this year. We recommend speaking in detail with your accountant to ensure you’re entitled to claim the deduction.

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

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Features of the new FAJ app

We are very excited to have recently launched the new Francis A Jones tax tools app. Our app includes tax tables and calculators, income and receipts trackers, a GPS based log book, news, contacts and more.

In this blog I’ll show you a couple of the calculators.

Our calculators are designed to provide you with ready and accurate information that will save you time.

Apple-iPhone-FAJ-Cover2The calculators available through the FAJ app are:

Income tax individuals
Company tax
PAYG withholding
Super caps contributions
Capital gains tax
GST
Fringe benefits tax
Loan repaymentApp loan 2
Gross pay
Super salary sacrifice
Domestic meal allowance

 

The loan calculator is extremely simple to use. Just enter the loan amount, interest rate and period, and the app will show you your monthly repayment, total repayments and total interest. It will also give you an amortisation schedule of the loan from start to finish.App loan 2

App payg 1

The PAYG Withholding calculator shows you how much tax your employer should be withholding from your pay. It requires you to answer 8 simple questions (mostly yes or no).

What is your pay period? (weekly, fortnightly, monthly, quarterly)
What are your gross earnings per pay period?
Have you provided your tax file number? (usually yes)
Are you an Australian resident? (usually yes)
Do you wish to claim the tax-free threshold? (usually yes)
Do you have a medicare levy exemption? (usually no)
Do you have a HELP debt? (university students may have one)
Do you have a SFSS debt? (university students may have one)

 

 

This calculator will be useful for employees who want to check that the employer is withholding the correct tax, or who are considering a second job (say ‘no’ to the tax-free threshold question). It’s also handy for employers with minimal employees to calculate your PAYG withholding liability.

The app is free to download from the Apple Store or Google Play.

Author: Mark Douglas

Email: mark@faj.com.au

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What is an Enduring Power of Attorney (EPA)?

An EPA allows you to give someone the authority to deal with your finances on your behalf.  This is different to a “normal” power of attorney as it continues to operate should you suffer a loss of capacity to make decisions.

A person appointed under an EPA is not permitted to make personal and lifestyle decisions, including decisions about medical treatment.  The authority is limited to decisions about property and financial affairs.

To cancel or revoke an enduring power of attorney you must be of sound mind.  It is recommended that the revocation is made in writing.

An EPA can be useful should you become unable to look after your affairs at some stage in the future.  This could be due to physical ailments, loss of mental capacity or something unforeseen, such as a motor vehicle accident.

The appointed attorney has a legal obligation to always act in your best interests and must keep their own money and assets separate from the money and assets of you.

Pro tip – EPAs are normally drafted along with your will. If in doubt, always seek legal advice.

 

Author:  Stacey Walker

Email:  stacey@faj.com.au

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Meal entertainment and FBT

Entertaining your employees and your clients is a great way to build rapport, say thank you or reward them for their efforts. And although it’s a necessary and important expense for many businesses, these benefits are partly diminished by the negative tax implications.

Entertainment fringe benefits arise on food, drink or recreation provided to an employee or their associates (e.g. spouse). Entertainment by means of food and drink can be further classified as meal entertainment, and this determination is crucial, as:

  • Meal entertainment provided in respect of employees is subject to Fringe Benefits Tax (FBT), which can make tax deductible and able to claim GST input tax credits on the expenditure; whereas
    • Meal entertainment provided in respect of non-employees is not subject to FBT, not tax deductible and the employer is unable to claim GST input tax credits on the expenditure.

As such, it is necessary for employers to allocate their meal entertainment expenditure between that for employees and for non-employees. There are three methods to choose from in determining taxable value. These are:

  1. The Actual Costs method – the FBT is based on the costs of the actual meal entertainment provided to employees (you need good records).
    2. Twelve Week Register Method – a 12 week register determines the percentage of costs for employees and this percentage is applied to total meal expenditure to determine FBT payable.
    3. 50/50 Split Method – the FBT payable is based on 50 per cent of the meal expenses paid by the employer during the FBT year.

Careful consideration must be taken in deciding which method to use as each has their own benefits and detriments. For example, the actual costs method provides the employer with a potential entitlement to various FBT exemptions but due to the additional work needed there are increased compliance costs. The 50/50 split method is simple and uncomplicated so it has less compliance costs but at the same time has no entitlement to FBT exemptions.
Here are some simple, more common examples of what constitutes entertainment and meal entertainment:

  • Lunch provided during in-house training on business premises – entertainment
  • Dinner provided where alcohol is consumed – meal entertainment
  • Tickets to the football – entertainment

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

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Watch out for ATO scam phone calls

Beware of phone calls supposedly from the Australian Taxation Office (ATO).

Recently there have been a lot of fake phone calls from the ATO. These people can be very convincing and can catch you off guard if you’re not prepared.

Here are a couple of tips to help you to recognise a fake call:

• The caller may accuse you of some level of fraud and suggest that unless you pay an amount immediately you are going to go to jail. The ATO doesn’t work this way. This tactic can be particularly effective with the elderly.
• The caller may ask you to confirm your personal details before they discuss “your ATO account”. These details could later be used for identity fraud.
• Most times a genuine ATO officer will call your Tax Agent. If you are unsure then insist that they call your agent.
• Generally speaking ATO employees are quite courteous. If the caller sounds pressuring or even threatening then the chances are that they are not from the ATO.

Pro-Tip
If you are in doubt ask for their phone number and pass it on to your Tax Agent to call them back. If you feel that your personal details may have been compromised then please let your Tax Agent know and they can discuss with the ATO as to whether a new tax file number should be issued.

Author: Matthew Moonen
Email: matthew@faj.com.au

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Access super before retirement

Are you approaching retirement? Are you still working but want to access some of your accrued superannuation?

Superannuation is money that is meant to be accessed upon retirement but if you’ve met your preservation age which, depending on when you were born could be between 56 and 60, you can draw out a portion of your money early. This is generally known as a transition to retirement strategy.

What are the advantages?
– Access super while still working
– Reduce work hours and maintain lifestyle
– Potentially pay less tax overall
– Improve your families position if you pass away through effective tax planning.

Pro Tip

Be aware that accessing your super monies early can have implications for tax, social security entitlements and life insurance. You should check all of these things with your accountant or financial advisor before entering into a transition to retirement strategy.

How do you start a retirement pension?
Get in contact with the administrators of your industry fund or if you are a member of a SMSF get in contact with your advisor or accountant.

If you need advice regarding tax planning or thinking about setting up a Self Managed Super Fund then get in contact with one of our FAJ specialists.

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

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Home Office vs Place of Business

If you operate your business from home you may be able to claim deductions for running costs and occupancy costs.

Occupancy Costs:
These are the costs of owning or renting your home e.g. mortgage interest, house insurance, council rates and rent.

Running Costs:
Include the following – electricity, cooling, lighting, cleaning and depreciation on furniture and equipment.

You can only claim a deduction for your occupancy costs if your home is considered your main place of business. This is generally the case where you carry out most of your business’ work at home or your business does not own or rent any premise other than the home.

Generally a section of the home is dedicated to the place of business if the following factors are satisfied:
1. The area is clearly identified as a place of business.
2. The area is not suitable for private use.
3. The area is used exclusively or almost exclusively for carrying on the business.
4. The area is used regularly for visits of clients or customers.

To work out the proportion of occupancy costs and running costs you can claim you can use the area of the floor space which the business work takes place. The ATO says you can use any method as long as it is accurate and reasonable.

Where a section of the home is not considered a place of business that section is considered a home office. This is where you perform work at home but your main place of employment is on another premises. If this is the case only running costs can be claimed as an expense and proportioned the same way as if it was a place of business.

Pro Tip
Please be aware if you are considering using part of your home as a place of business and claiming occupancy costs that part of the home is subject to capital gains tax when you sell your home. The market value of your home at the point of when you first start to produce income is the cost base for capital gain purposes. It would then be a good idea to get a valuation of your home when it starts as your place of business, so when you sell your house you don’t pay more capital gains tax than necessary.

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

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Methods to Claim Motor Vehicle Expenses

There are four methods you can use when claiming work-related motor vehicle expenses.

Cents per kilometre
This method allows you to claim a set rate for each work related kilometre travelled for the financial year. The set rate is based on the car engine size. You do not need evidence to show the business kilometres travelled, but a reasonable estimate is required. A maximum of 5,000kms is allowed. This is the most popular method to use and is therefore explained further in another blog.

12% of original value
This method involves claiming 12% of the original value of your car. (12% of the cost if you bought the car or 12% of the market value of the car if you leased it). The value of the car to which you can claim the 12% of is subject to a $57,466 car limit. If the cost of your car is over this limit you must multiply 12% by the $57,466 as your deduction.
To use this method, you must have travelled more than 5,000 work related kilometres during the financial year. You do not need evidence to show that you travelled over 5,000kms, just proof of a reasonable estimate.
Example – I have a vehicle costing $30,000. I have owned the vehicle for the full year and have travelled over 5,000 work related kilometres. Using the 12% method I can claim $3,600 (12% x $30,000) deduction.

One-third of actual expenses
This method allows you to claim one-third of all your car expenses throughout the financial year (excluding costs such as the car purchase price or principal loan repayments). To use this method you must have travelled over 5,000 business kilometres and maintained written evidence of all your car expenses throughout the year. However, your fuel and oil costs can be estimated based on odometer records if receipts were not maintained. Some examples of the car expenses for which you should record are:
• Fuel and oil
• Registration and insurance
• Interest on the vehicle loan
• Repairs and maintenance
• Depreciation or lease payments.
Once you have calculated the total of all your expenses for the year, you divide it by 3 to calculate your deduction.

Logbook
This method is most advantageous if you travelled a significant number of kilometres for work purposes. If you are using this method you must maintain a log book of your cars usage in order to work out the percentage for which your car was used for work. However, you are only required to keep a continuous log book for a 12 week period. This will then represent your travel throughout the financial year and is a valid representative for up to five years. Your log book must contain:
• When the logbook period begins and ends and the cars odometer readings at the start and end
• The total number of kilometres travelled during the period
• A record of the kilometres travelled for each journey and the respective odometer readings and also the reason for the journey
At the end of the financial year you can use your logbook to work out what percentage of your car expenses will be claimed for work related purposes.
Example:
At the end of the financial year my logbook records show a total of 10,000kms travelled, 7,000 of which were for work related purposes. My business use percentage is therefore is 70% (7,000/10,000). Throughout the year I had expenses of $8,000 (including depreciation); therefore I can claim $5,600 (70% x $8,000) as a deduction.

Looking forward:
For the 2015/16 financial year, the government has announced to discontinue the 12% of original value and one-third of actual expenses methods. They have also announced that a flat rate off 66c will be introduced across all engine sizes for the cents/km method. This is unfortunate news for those who use this method with larger sized vehicles.

Pro-tip
It is possible to claim up to 5,000kms on more than one car.

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

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