Category: Tax Questions

$20,000 instant asset write off

This is the final year of the $20,000 instant asset write-off – to be abolished from 1 July 2018. 

Until 30 June 2018, Small Business Entities (SBE’s) can claim an immediate write-off for most depreciating assets used in their business if the asset costs less than $20,000 and the below time frames are met. In broad terms, SBE’s are entities (including sole traders) that are carrying on a business and have an annual turnover of under $2 million. This includes the turnover of any connected entities and affiliates. 

Being in its final year of operation, the timing requirements around the instant asset write-off are important.

To claim a deduction in 2017/2018, the asset must have been acquired on or after 1 July 2017 and first used or installed ready for use in your business on or before 30 June 2018.  To be claimable in full in 2017/2018.  

If you miss the deadline (i.e. if the asset is not being used in your business or installed ready for use on or before 30 June 2018) then the write-off threshold reverts to $1,000. 

Missing the deadline will result in a worse cash-flow outcome for your business than if the deadline is met . 

WHAT’S THE BENEFIT?

The real benefit from the $20,000 write-off is an improvement to your cash-flow. The write-off improves small business cash-flow by bringing forward deductions rather than having them spread out over more than one year. Cash-flow can be a significant issue for small business, particularly start-ups. That said, it is important to have perspective. You are only getting back the tax rate on the asset, not the full value of the asset. This is the same as the old law where the write-off was $1,000 (which will apply from 1 July 2018).  You don’t get any extra cash than you would otherwise have received under the old rules – you simply get it sooner.

Consequently, you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan .

Director Remuneration & Superannuation

Question – We have a small business set up as a company. My partner and I are the directors. We would both rather not pay super. The money could be far better spent in the business. Is there any way to get out of not paying?
Answer
TYPES OF PAYMENT TO A DIRECTOR: At the outset, it’s worth noting that there are a variety of ways that a director or stakeholder of a company can receive remuneration including via ‘Directors Fees’, Directors Salary, fringe benefits, dividends, even as a contract style payment (in very unusual circumstances) etc.

SUPERANNUATION: All fees paid to a company Director are earnings in respect of the Director’s ordinary hours of work. As such, they attract Superannuation Guarantee (SG). Director SG payments must, as with payments to employees, be made to the nominated superannuation fund or a Superannuation Clearing House as the case may be. It’s against the law to make them directly to the Director (irrespective of any written agreement in place between them and the company).

YOUR QUESTION As noted, drawing payments such as a salary from the company would attract SG and this cannot be avoided or contracted our of. To minimise the company’s SG obligations, you could discuss with Accountant the possibility of being remunerated solely by way of a dividend (such remuneration does not attract SG). Alternatively you could consider restructuring into a Partnership or Trust structure (in those cases, distributions of profit generally do not attract SG). To this end, we note the Government’s recently introduced Small Business restructure rollover which allows small business owners to change their operating structure without incurring CGT or income tax, subject to various conditions being met.

Housing Fringe Benefits

Question – Is a farm house provided to a farm manager on a farm subject to FBT? Answer – Yes, the provision of the farm house to the employee would fall into Housing Fringe Benefits for FBT purposes. More details on Housing Fringe Benefits can be found on the ATO website (use the tabs on the left-hand side of that page).

Donation/Entry Fee Question

Question:Posted 17th March, 2016A charity organisation is running an event which is ticketed and 100% of the ticket proceeds go to the charity. Is the purchase of entry to the charity event claimable as a deduction in tax?Answer: The charity would need to be a registered DGR (Deductible Gift Recipient) with the ATO, and the donor would need to be receiving nothing in return (e.g. no dinner or other benefits).However, if the cost of the ticket is merely a right to attend an eligible fundraising event (e.g. ticket to attend a charity ball, conducted by the DGR) then the cost will be tax deductible. 

Land Tax & Stamp Duty

Question:Posted 4th of March, 2016When an Investment property/house/building  is negatively geared – Is Land Tax and Stamp duty –Tax deductible ?Answer:Stamp duty on the purchase of the property is not immediately deductible, rather it forms part of the cost base for Capital Gains Tax (CGT) purposes which is relevant when you come to sell your property and work out your capital gain or loss. By contrast, stamp duty on the any mortgage you take out is deductible over five years – as a borrowing expense.With land tax, this is deductible immediately (i.e. in the year it is paid). 

Salary Sacrifice

Question:Posted 3rd of February, 2016An employee has resigned after 12 years of employment. She will be 57 at the end of the financial year.She would like to Salary Sacrifice part of her lump sum Long Service Leave into her super fund. Is this possible?Answer: Unfortunately this is not possible as the salary sacrifice arrangement must be put in place before the money is earned (i.e. before the long service leave has accrued). This is confirmed on the ATO website.

LAFH Allowance

Question:Posted 13th of January, 2016I am enquiring if when l pay a LAFH Allowance, if this should be taxed or paid gross (no tax) and where does it sit on the payment summary (if at all)?Answer:Do not report these amounts on the payment summary, unless it forms part of the reportable fringe benefits amount, because living-away-from-home allowance fringe benefits are not assessable income for the payee. Also, you should not withhold tax from these amounts. Just pay them gross.Further reading

Travel Allowance Payment to employees

13 November, 2014
 
In relation to travel allowance payment to employees – can I claim GST with this payment?
 
No, GST cannot be claimed where you pay a travel allowance.
 
Employers may however in certain circumstances claim GST when they reimburse an employee for certain expenses.
 
See here for the rules.
 

GST on the sale of a company vehicle.

10 November, 2014
 
I need clarification on whether GST is collectable by the ATO on the sale of a company vehicle to a private individual.
 
You generally have to account for GST when you dispose of a motor vehicle if the disposal is a taxable sale. This applies even if the vehicle is sold to an individual who is not in business (a private sale).