Tag: 2017

Travel Allowances – Domestic and Overseas

In TD 2017/19, the ATO has set what is considers ‘reasonable’ limits for allowances paid in connection with overnight travel (see the tables at the end of this spcial edition). In such cases, the employee must sleep away from their home. The amount of the allowance depends on both your destination and your annual salary. Unlike an overtime meal allowance reasonable domestic and overseas travel allowances do not have to be paid under an industrial award or agreement. Reasonable travel allowances are paid in respect of set travel components:

  • Domestic allowances include components for accommodation, meals and incidentals.
  • Overseas allowance include components for meals and incidentals only. They do not include a component for accommodation. Any claim for accommodation, regardless of the value, must be fully supported by written evidence.
The components of demestic travel allowances are set with reference to costs in spectific destinations and according to an employee’s annual slalary. Designated high cost contry centres also have specified accommodation rates.

LIkewise, overseas allowances for meals and incidentals are set with reference to costs in the various countries. Countries are grouped todgether according to the relative cost of living associated with each location.

For example, less expensive countries to travel in, susch as Bolivia and Paraguay, are grouped together (Group 2), while countries that are expensive to travel in, such as Denmark and Norway are grouped together at the other end of the scale (Group 6).

Travel allowances are comprised of the following components:

Accomodation (Domestic Travel Only)
The accommodation reates shown for domestic travel apply only for stays in commercial establishments, such as hotels, motels and serviced apartments. If a dfferent type of accommodation is used, the rates do not apply. Reasonable allowance amounts have not been set for overseas accommodation and written evidence is required for claims made for this time of expense.

Meals
The reasonable amount for meals depends on the period and time of travel. That is, the rates will only apply to meals (ie breakfast, lunch, dinner) that fall within the period from the commencement of travel by the employee to the end of travel covered by the allowance. Therefore, in determining the reasonable amount for meals, one must not only look at the reasonable amount per meal (ie the dollar figure provided in TD 2017/19), but also what meals (ie breakfast, lunch, dinner) it is reasonable to include from the time the travel commences to the end of the travel period covered by the allowance.

Incidentals
……..

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NON-COPRPORTATE TAX CUTS – SBITO

The Government has passed legislation increasing the rate of the Small Business Income Tax Offset (SBITO). This article details this change and its tax impact.

INCREASED OFFSET
Along with companies, the more than 70% of small businesses that are not incorportated will also enjoy additional income tax relief from 2016/2017. In 2016/2017 income and later income years, a higher rate of SBITO will apply:

  • For 2016/2017 to 2023/2024, the SBITO is 8% of an eligible individual’s basic income tax liability that relates to their total net small business income (up from 5% in 2015/2016).
  • For 2024/2025, the SBITO is 10% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2025/2026, the SBITO is 13% of an eligible individual’s basic income tax liability that relates to their total net small business income.
  • For 2026/2027 and later income years, the SBITO is 16% of an eligible individual’s basic income tax liability that relates to their total net small business income.
Furthermore, the aggregated turnover test for access to the SBITO has been increased from 2016/2017 to $5 million (up from $2 million).

BACKGROUND
By way of background, individuals are entitled to the SBITO if they are an SBE (i.e. sole trader) or they have a share of a smaill business’ net income included in their assessable income (for example, distrbutions from a partnership or trust which themselves are SBEs) provided the small business is not a corporate tax entity (i.e. company). An individual can only claim one SBITO for an income year irrespective of the number of sources of small business income that an individual receives. The maximum amount of the SBITO from all sources of SBE income is $1,000 for an income year which will be claimed in your year-end tax return. 

Although capped at $1,000 per individual, serveral individuals within the one structure can enjoy their own SBITO (not just the business owner) provided at the end of income year they are assessed on income from an SBE. The discount is applied to your net small business income’ as follows:

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DEPRECIATION FOR NON-BUSINESS TAXPAYERS

For individuals not in business, who are preparing their tax return over the coming months, depreciable items you acquire for work purposes can in certain circustances be claimed outright. This means you get an immediate deduction for the cost of the asset to the extent that you use it to generate assessable income during the income year:

The immediate deduction is availasble when you start to hold a depreciating asset in an income year and the asset costs $300 or les, and:
  • Is used predominantly for the purpose of producing assessable income that is not derived from carrying on a business
  • Is not part of a set of assets you start to hold in that year that costs more thant $300 , and
  • Is not one of a number identical or substantially identical assets acquired in the same year that together cost more than $300.

Examples of depreciating assets which could be eligible for the immediate deduction are:
  • Tools of trade acquired by a tradesman
  • A briefcase purchased by a salary and wage earner for their job; and
  • Furniture purchased for a rental property.

Farm Management Deposits

Introduced in 1999, Farm Management Deposits are seen to be an important part of risk management for primary producers. What are they and do they work? This article takes a close look at the Farm Management Deposits Scheme, some of the commonly asked questions and works through a case study to determine the answers.

BASICS

In simple terms, the Farm Management Deposit (FMD) scheme is intended to allow Primary Producers the opportunity to shift “before-tax’ income to a later year where they may offset losses due to unfavourable climatic or market conditions. FMDs are considered an important risk management tool for the Primary Producer to ‘even out’ what could otherwise be extremely uneven income years.
The scheme works by allowing Primary Producers to claim an income tax deduction for an actual cash deposit into an FMD scheme in the year the deposit is made. As a result, this reduces the Primary Producer’s taxable income in the deposit year and hence any income tax payable on the deposit amount. In a later income year, when the Primary Producer’s income may be low due to a downturn in market or climatic conditions, the Primary Producer can apply to the FMD scheme for a withdrawal. The amount is then included in the Primary producer’s assessable income for that year and taxed accordingly.

The scheme is cash-flow driven; in a bountiful year, the surplus cash is deposited in a FMD held with a financial institution. In a lean year the cash is withdrawn from the FMD to assist the Primary Producer to pay for business expenses.

 ELIGIBILITY

THE OWNER

The owner of an FMD is a person on whose behalf the deposit is made. The owner must be a Primary Producer at the time the deposit is made. The owner cannot be a joint ownership or a Company but, rather, the scheme is restricted to ownership by individuals (including Partners in a Partnership). The only exception of this rule is where a Trustee is acting on behalf of a beneficiary who is presently entitled to a share of the income of a Trust estate, but is under legal disability (for example, a minor under the age of 18 years)

DEPOSIT-TAKING INSTITUTION

You must make your deposits with an FMD Provider that is an authorised deposit-taking institution or an entity that has a Commonwealth, State, Territory guarantee for deposits. This includes any bank, building society or credit union. You can make deposits with more than one of these institutions.

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Company Tax Rate Clarification

The Government has just announced that it will introduce legislation into Parliament to clarify confusion around the applicable tax rate for companies.

By way of background, in recent times the Government has passed legislation to progressively reduce the company tax rate for companies with a turnover of up to $50 million as follows:

 

Income year

 

Turnover threshold

Company tax rate for entities under the threshold

Company tax rate for entities over the threshold

 

2015–2016

$2m

28.5%

30.0%

2016–2017

$10m

27.5%

30.0%

2017–2018

$25m

27.5%

30.0%

2018–2019
to
2023–2024

$50m

27.5%

30.0%

2024–2025

$50m

27.0%

30.0%

2025–2026

$50m

26.0%

30.0%

2026–2027

$50m

25.0%

30.0%

 

It appears that the Government’s intention in making these reductions was to encourage small to medium businesses to reinvest the tax savings in their business, and in turn promote employment and investment growth.  

However, this intent became clouded recently when the ATO issued a draft Taxation Ruling in which it stated that, in its opinion, companies that were engaged in passive investments in shares and property could be seen to be carrying on a business, and thus eligible for the reduced company tax rate.

In response to this, the Government has stated that it will soon move to introduce legislation clarifying that only active trading companies qualify for the lower tax rate (and therefore not bucket companies or passive
investment companies).

Accordingly, if your company because of its turnover currently qualifies for the 27.5% tax rate and you are varying or otherwise calculating its PAYG Instalments, these should be calculated based on the reduced 27.5% tax rate only where the company is actively trading.

Bucket companies and companies that are solely engaged in passive investments in shares and property should operate (and calculate their PAYG Instalments) on the basis of the 30% rate applying; irrespective of the level of turnover.  

https://www.ato.gov.au/Business/Small-business-entity-concessions/Concessions/Income-tax-concessions/Small-business-company-tax-rate/


Payment Summaries Due 14 July 2017

With the end of financial year fast approaching, be mindful that Payment Summaries must be provided to employees by 14 July for 2016/2017. This date is not just a guideline but is actually stipulated by law (Section 16- 155 of the Tax Administration Act). Two of the most common errors made in preparing the Individual Non-Business Payment Summary for employees are:

 

  • Misstating reportable employer superannuation contributions – ensure that you exclude Superannuation Guarantee amounts from this label. Salary sacrificed superannuation amounts must however be included.

 

 

This year there are special rules for Working Holiday Makers. A reduced tax rate applies for employers who registered with the ATO from 1 January 2017 — 15% up to $37,000 and 32.5% from $37,001. For registered Working Holiday Makers who worked both before and after 1 January 2017, two Payment Summaries must be issued, with the two different tax rates applying to the gross payments, depending upon the time of payment.

 

On the other hand, employers who did not register with the ATO for the reduced tax rate and continued to withhold at the foreign resident rate of 32.5% are required to issue the standard single Payment Summary per employee.

 

The Payment Summary for 2016/2017 includes a new section for overseas workers. In the Gross Payments Type box you must now indicate a type – this will be either S (salary), or H (registered Working Holiday Makers).

 

 

 

How a good Bookkeeper can help your business!

Making the Most of the Bookkeeper Relationship  

The use of bookkeepers has grown substantially over recent years. This article examines the merits of using a bookkeeper in your business, and how to get the most out of the relationship.

SERVICES
When many people think of bookkeeping, thoughts turn to looking after petty cash, entering invoices into a software system, and keeping receipts together. The reality though is that the modern-day bookkeeping professional offers a range of services that can be utilised by your business including:
  • Management reporting on business performance
  • Data entry into accounting software
  • Cash flow projections
  • Payroll tax returns and compliance
  • Preparation of year-end financial records for your Accountant
  • Payroll and superannuation processing including dealing with the ATO and superannuation funds
  • Activity Statement preparation and lodgement
  • Record keeping
  • Software training.
Given the breadth of services, Bookkeepers can become trusted partners and advisors to your business.

 REGISTERED
If you do decide to engage a contract Bookkeeper, then unless they are an employee of your business or unless they are only undertaking basic services (such as bank reconciliation, basic date entry such as entering invoices onto a computer program) then they must be registered with the Tax Practitioners Board as a BAS Agent. If they are not registered, then they may be breaking the law. You can check their registration on the Tax Practitioner Board website https://www.tpb.gov.au. They will also have their own BAS Agent number which along with the Tax Practitioner Board logo they may or may not display in their email signature.

WHAT TO LOOK FOR
Aside from being registered with the Tax Practitioners Board, what should you look for in a contract bookkeeper? Consider the following:

Personal traits that fit with your team
  • Do they understand your business and your industry?
  • Do they have a natural affinity with you and the personnel they will be dealing with in your business?
  • Are they knowledgeable and add value to your business?
  • Are they reliable and punctual, with strong attention to detail?
Track Record
Your bookkeeper should be able to demonstrate that they have experience relevant to the assignment you are offering. Many will likely have testimonials to evidence this.

Back-Up and Support
A good bookkeeper will have back-up and support that they can use to quickly settle issues that may be outside their skillset or experience. Back-up and support can take the form of educational materials, explanatory resources and access to other qualified practitioners from whom the bookkeeper can seek feedback and support should any technical issues arise. This support may be in the form of membership of a bookkeeping industry organisation such as Australian Bookkeepers Network https://www.austbook.net/ .

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New Year Issues and Strategies

The New Year is a time to reflect, but also look ahead. Following are some of the issues business owners and individuals may turn their minds to as we enter 2017.

STAFFING LEVELS
Employing – If you determine you need additional staff – perhaps you are adding additional services/product lines to your business; you have a shortfall in the number of staff required to undertake current work in your business; or are replacing staff who have left your business – there is a myriad of obligations and procedures to be followed, both at a State and Federal level. To assist employers, the Government in conjunction with small business owners, Tax Agents, and industry associations, has created a Taking on Employees Checklist www.business.gov.au/info/run/employ-people. Irrespective of which State or Territory you are located, this comprehensive checklist covers off on all the Federal and State laws that apply when taking on a new employee – from pay entitlements, superannuation, insurance, withholding tax, and more. It’s a one-stop shop.
Redundancy – On the other hand, if your year-end review of staffing levels determines that there is excess staff, an employee may be made redundant. From a taxation perspective, a redundancy occurs when the employee is dismissed because the job they are doing no longer exists in your business – it has become redundant, and nobody is required to perform that specific role. Where this is the case, the employee is afforded concessional tax treatment on payments such as: payments in lieu of notice, severance payments of a number of weeks’ pay for each year of service, and gratuities or golden handshakes. Any payments that meet the conditions of a genuine redundancy are tax-free up to a limit based on the employee’s years of service with you. The tax-free limit is a flat dollar amount ($9,936 for 2016/2017), plus an amount for each year of completed service ($4,969) with the employer. Indexation changes the tax-free limit on 1 July each year. Note that for this concessional tax treatment to apply, the employee must be less that 65 years of age a the time the redundancy payment is made.
The following payments are not included in a genuine redundancy payment – salary/wages/allowances owing for work already done or leave already taken for work completed; lump sum payments of unused annual leave or leave loading paid on termination of employment; lump sum payments of unused long service leave paid on termination of employment under a financial arrangement; or payments made in lieu of superannuation benefits.

SUPERANNUATION CHANGES
Upcoming superannuation changes will impact many thousands of Australians in 2017, and may require some forward planning on your part. The changes which have now been passed by Parliament are:
  • From 1 July 2017, only those with a superannuation account balance below $1.6 million will be able to make non concessional contributions
  • If you are eligible to make no-concessional contributions from 1 July 2017 (i.e. have an account balance below $1.6 million) you will be limited to $100,000 per annum (or $300,000 over three years using existing bring-forward rules). Up until this date, the cap remains at $180,000 or $540,000 over 3 years. Thus over the coming months taxpayers, who are contemplating making large non-concessional contributions may wish to consider bringing forward those contributions to before 1 July. If making a large contribution (e.g. you may have received an inheritance, or sold a property) this will enable you to deposit more money into the concessionally  taxed superannuation environment sooner, and enjoy those tax concessions from an earlier date.
  • Concessional contributions limit will from 1 July 2017 be reduced to $25,000 for all taxpayers. Currently, the limit is $30,000 (or $35,000 for taxpayers aged over 49)
  • Allowing all individuals eligible to contribute to superannuation a deduction for their personal contributions up to the concessional contributions limit, from 1 July 2017.
  • Taxing the earnings in respect of Transition to Retirement Income Streams (TRIS) at 15% (up from 0%) from 1 July 2017.
  • Reducing the income threshold at which taxpayers are charged an extra 15% tax on the concessional contributions from $3000,000 to $250,000 from 1  July 2017. 
INSTANT ASSET WRITE-OFF
With a sunset date of 30 June 2017, small businesses may wish to start considering bringing forward any planned asset investments to the next few months – particularity in this current low interest-rate environment. Up until 30 June 2017, Small Business Entities (SBE’s) can claim an immediate write-off for the acquisition of most depreciating assets used in their business if the asset cost less that $20,000.

PENSION AND ALLOWANCES CHANGES
On 1 January 2017, new rules for pension access will be applied. It is estimated more than 300,000 Australian will have their benefits reduced as a result Some forward planning may be required to replace any lost income. To be clear, these changes will affect all pensioners who are assets tested, or who are currently income tested but become asset tested including recipients of the Age Pension, Carer Payment, Disability Support Pension, Widow B Pension, and Wife Pension. The Asset Test Free Area is the amount of assets above which allowances are not paid and pensions are reduced. From 1 January 2017, the Full Pension Thresholds will increase. Only if your assets are below the thresholds will you be eligible for a full pension under 2017 assets test.

For the complete article, including case studies, please see your Jan/Feb 2017 ATR BiMonthly Update magazine, or log into your exclusive Members Area to read this article online. www.mytaxsavers.com.au/login