Tag: Instant Asset Write Off

INSTANT ASSET WRITE-OFF EXTENDED

The extension of the $20,000 instant asset Write-Off has now been passsed into law. 

PASSED
In the May 2018 Federal Budget the Government announced an extension to the Small Business Instant Asset Write-Off that was originally introduced from 1 July 2015. Under the Budget announcement, the Write -Off was to be extended until 30 June 2019 (it was to expire 30 June 2018). On 12 September 2018, The Treasury Laws Amendment (Accelerated Depreciation for Small Business Entities) Bill 2018 was passed by the Parliament into law to give effect to this 12-month extension.


More info? In our exclusive Members Area, watch the Webinar on Instant Asset Write-off (under the useful links tab) and read the full article in your November/December 2018 Bi-Monthly Newsletter, page 15.

NOT a member? Join today for exclusive access to articles, webinars, videos & publications on Saving Tax!
Call today on 1800savetax (1800 728 3829) for a special offer for first time subscribers.
https://mytaxsavers.com.au/what-do-i-get/

SMALL BUSINESS REDIFINED

On 31 March, the Government secured Senate support for the passage through Parliament of legislation to assist small to medium businesses. While company tax cuts were the headline measure, included in the changes was an increase to the Small Business Entity (SBE) turnover threshold. Backdated to 1 July 2016, the SBE turnover threshold has been increased from $2 million to $10 million. Treasury estimates that this will allow an additional 90 000 to 100 000 businesses to qualify for a range of SBE tax concessions including:

 

  • Immediate deductibility for small business start-up expenses
  • Simpler depreciation rules
  • Simplified trading stock rules
  • Roll-over relief for restructures of small businesses
  • Deductions for certain prepaid business expenses immediately
  • Accounting for GST on a cash basis
  • Annual apportionment of input tax credits for acquisitions and importations that are partly creditable
  • Paying GST by quarterly instalments worked out by the ATO
  • Fringe benefits tax (FBT) car‑parking exemption and
  • Pay‑As‑You‑Go (PAYG) instalments based on gross domestic product (GDP)‑adjusted notional tax.

 

With the legislation and therefore increased SBE eligibilty backdated to 1 July 2016, this presents a tax planning opportunity for business. Among the depreciation concessions is the $20 000 instant asset write-off – giving SBEs the ability to claim as a deduction the full cost of the asset in the year of purchase and installation (rather than having the item depreciated over a number of years). The real benefit of the write-off is an improvement to your cash-flow – bringing forward deductions rather than having them spread out over more than one year. To claim a deduction in 2016/2017, the asset must have been acquired on or after 1 July 2016 and first used or installed ready for use in your business on or before 30 June 2017. So if you are contemplating purchasing a depreciating asset for your business (such as furniture, machinery, tools, equipment, small motor vehicle etc.) you may wish to bring forward that purchase to before 1 July 2017 and enjoy the cash-flow benefit.

 

Over the coming months we will be detailing the other various concessions listed above.

 

WHATS HOT?

This article examines some topical issues that taxpayers and employers should be aware of at this time. Areas covered include ATO compliance, the instant asset write-off, Airbnb tax consequences, and more.

NEW ATO RULES

The ATO is currently on the look-out for and taking action against employers who are not complying with two new regimes:

BACKPACKER TAX
Employers who employ workers in Australia on a 417 or 462 visa must now be withholding 15% tax from every dollar that they earn up to $37,000 (from the first dollar that they earn). These workers can no longer claim the tax-free threshold. Beyond $37,000, the normal tax rates apply.

Employers who currently have these workers on their books, must have registered online with the ATO by 31 January 2017 at www.ato.gov.au/twhm/ to be able to withhold at this new rate. Employers who won’t have this class of workers on their books until later in the year can register their business at that time. When you register with the ATO, you will typically not receive an acknowledgement, however the ATO advise that they will eventually include your registration information in your business’s ATO profile. To confirm that your registration has been successful, at this stage you will need to phone the ATO. Employers who cannot register online, can register with the ATO by phoning their business info line on 13 28 66. Employers with this type of worker on their books who do not register with the ATO will be required to withhold at the 32.5% rate and may be subject to ATO penalties.

SUPERSTREAM
Despite the deadline having passed months ago, SuperStream non-compliance among employers is still relatively high. By way of background, SuperStream is a Government initiative that aims to improve the efficiency of administering Australia’s superannuation system. The system requires employers to remit employee contributions (including Superannuation Guarantee) and other relevant data in an electronic, standardised format. The data is linked to the payment by a unique payment reference number. All employers are now required to be SuperStream compliant except for:
  • Contributions to your own SMSF (i.e. if you’re a related-party employer) – for example , if you’re an employee of your family business and your Superannuation Guarantee contributions go to your SMSF.
  • Personal Contributions – for example, if you’re a sole trader and you contribute to a superannuation fund for yourself.
Fines of up to $8,500 can now be imposed by the ATO on employers who are not SuperStream compliant. For more information on the SuperStream regime including compliance solutions, see the September/October edition of our publication which is available in the subscriber section of our website https://www.taxrmytaxsavers.com.aueporter.com.au

INSTANT ASSET WRITE-OFF

If you are a small business (aggregated turnover of less that $2 million) contemplating buying machinery or equipment, be aware that these are the final months of the $20,000 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 – particularly in this current low interest-rate environment. You can read more about the cashflow benefits of the instant asset write-off in the previous edition of our publication (January/February 2017 ). Note that legislation is currently before the Parliament to increase the turnover eligibility threshold from $2 million to $10 million (to be back dated to 1 July 2016) however at the time of writing this has not yes been passed into law. We will immediately notify subscribers via email if and when this increase becomes law.

RENTING OUT YOUR HOME

With the advent of Airbnb many more residential home owners are now landlords – renting out their entire house, or one or two rooms. The ATO is at the moment,is particularly targeting those that rent out part of their property via Airbnb.

Whether you are renting out your entire home or part of your home through Airbnb or just traditionally by advertising it or through a real estate agent…. the tax consequences are broadly the same as follows:
INCOME
Any rental income will be assessable. You should keep records of your rental income, even when it is paid by the tenant in cash.
RENTAL EXPENSES
Where your rental income is assessable, you are generally entitled to tax deductions for expenses incurred in deriving that income.For landlords these generally fall in 3 categories:

To read the complete article please see the ATR Bi Monthly update for Mar/Apr 2017 – this can be accessed via our exclusive ATR Members Area https://www.mytaxsavers.com.au/login

N
ot a subscriber? Subscribe now https://mytaxsavers.com.au/plans/subscriptions/


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

THE 123 OF SBEs

WHAT IS AN SBE?

SBEs can include companies, partnerships, trusts or sole traders. To qualify as an SBE the following two criteria must be met:

1. CARRYING ON A BUSINESS
To be an SBE you must in the first place be carrying on a business. The long-standing ATO tax ruling in this area is Taxation Ruling Tr 97/11 which contains the following series of factors that may indicate that a business is indeed being carried on:
  • There is a significant commercial purpose or character
  • There is more than a mere intention to engage in business
  • There is a repetition and regularity to your activities – and some genuine time spent on the activity
  • The business is carried on in a similar way to others within the same industry
  • There is organisation to your activity
  • There is size and scale to the activity
  • It is not a hobby or a form of recreation

Leaving aside the tax concessions on offer, carrying on a business (as distinct from a hobby) brings with it a range of tax obligations. If you are in any doubt as to whether your are indeed carrying on a business you should consult your Accountant.

2. TURNOVER <$2 MILLION
If you are carrying on a business, you will be an SBE if your aggregated annual business turnover (i.e. gross profit) is less than $2 million. This includes the turnover of:
  • Connected entities – an entity is connected with another entity if: either entity controls the other, OR Both entities are controlled by the same third entity.
  • Affiliates – an affiliate is any individual or company that, in relation to business affairs, acts or could reasonably be expected to act: According to your directions or wishes, OR In concert with you.
The aggregation rules ensnare quite a number of related businesses – requiring them to add their annual turnover together and as a result potentially take them over the $2 million threshold. If you are in any doubt as to the application of these rules, talk to your Accountant.

THRESHOLD
The $2 million turnover threshold is absolute. If it is exceeded by even $1, your business will be ineligible for many SBE concessions on offer (some detailed later). If your business’s turnover is around $2 million, it’s worth keeping a close eye on it at financial year-end. While we do not suggest that, you avoid growing your business just to stay under the threshold, if your turnover is nearing the threshold at financial year-end, it certainly pays to stay under that threshold from a tax perspective –  perhaps by deferring year-end invoicing where practical to the following financial year (post 30 June).

We now examine some of the SBE concessions available – 


IMMEDIATE DEDUCTIONS FOR PREPAID EXPENSES

As an SBE you can claim an immediate deduction for certain prepaid business expenses where either of the following 2 conditions is met:
1.  The payment is for a period that is 12 months or less and ends on or before the last day of the income year in which the expense is incurred, or
2.  The prepaid expense is “excluded expenditure” which is defined as expenditure that is:

  • Less than $1,000 (GST-exclusive) or 
  • Prepayments that are required to be made under a law or by court order under the Commonwealth, State, or Territory (e.g. car registration, workers compensation, etc) or 
  • Made under a contract of service (e.g. salary and wages).

EXAMPLE
In May 2016, Bruce’s business prepays $2,000 for an advertisement to be run in the local newspaper every fortnight for six months from May until November.

NON SBE
If Bruce’s business was not an SBE (i.e. had a turnover of $2 million or more) and the prepayment was for $1,000 or more, the deductions must be apportioned over the periods to which they relate.  Therefore only two months’ worth of deductions (for May and June) could be claimed in 2015/2016.  The remainder must be claimed in 2016/2017 being the period to which they relate.


SBE
If Bruce’s business is an SBE, then because the period for which the payment relates is for 12 months or less and ends before the conclusion of the following income year (2016/2017), Bruce can claim the entire $2,000 prepayment as a tax deduction in the 2015/2016 tax return.  This is irrespective of the fact that the amount exceeds $1,000.  This outcome reduces Bruce’s taxable income for the year, resulting in less tax and a consequent cash-flow benefit.


Assume instead that the above $2,000 amount was for vehicle registration for a vehicle used exclusively in the business.  Although the amount is for more than $1,000 and covers more than one income year, there is no requirement to apportion the payment.  It can all be claimed in 2015/2016 as it is required to be paid under State Government law.

The prepaid expenditure concession provides SBEs with cash-flow relief by enabling them to bring forward deductions that would otherwise be apportioned over two income years.  Examples of business expenditure items that you may wish to prepay include rent, insurance, repairs to business assets, subscriptions, business trips, seminars and conference bookings, leases, deductible car registration fees, and telephone and internet services.

TRADING STOCK RELIEF

Conducting a stock-take usually involves physically counting your stock and valuing each item.  This can be a time-consuming process.  Rather than conduct an end-of-year stock-take in order to account for changes in the value of your trading stock, as an SBE you can elect not to conduct a stock-take where there is a difference of $5,000 or less between:

  • The value of your stock on hand at the start of the income year and
  • A reasonable estimate of the value of your stock on hand at the end of the income year.

TAX TIP
An increase in your trading stock’s value over the year is assessable income, while a decrease is an allowable deduction.  It follows that where there has been a decrease, you may wish to ignore this SBE option of not conducting a year-end stocktake (to not conduct a stocktake in such circumstances would be to deny your business a year-end deduction).

INSTANT ASSET WRITE-OFF

2016/2017 is the final year for SBEs to take advantage of the $20,000 instant asset write-off and provide your business with cash-flow relief.  Until 30 June 2017, SBEs can claim an immediate write-off for most depreciating assets used in their business if the asset cost less than $20,000.

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

To claim a deduction in 2016/2017, the asset must be first acquired from 1 July 2016 and first used or installed ready for use in your business on or before 30 June 2017.

Assets acquired before 1 July 2016, but first used or installed ready for use between 1 July 2016 and 30 June 2017 are also claimable in full in 2016/2017.

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 2017) 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 (see later example).

Assets costing $20,000 or over are depreciable at a rate of 15% in the first year, and then 30% in subsequent years.

CASE STUDY: CASH-FLOW BENEFIT
An eligible SBE company purchases an eligible asset for $19,999 on 2 July 2017.  As the asset is not purchased and installed ready for use on or before 30 June 2017 the instant write-off threshold is only $1,000.  As this asset exceeds this threshold the standard pooling rules apply.  The asset will be written off at 15% in the first year of 2017/2018 ($3,000) and 30% in subsequent years.  The real benefit (i.e. the effect of the tax deduction in dollar terms) the company would receive from these depreciation claims is $855 for the first year (assuming a 28.5% small company tax rate) and $1,453 in the second year (assuming a small business company tax rate of 28.5%).  The company would continue to depreciate its general pool at 30% until the pool was under $1,000, at which point the entire pool could be written-off (after approximately 9 years).
By contract, if the purchase of the asset was brought forward a few days and the asset was used or installed ready for use on or before 30 June 2017 under the $20,000 threshold, the company would be able to immediately deduct the entire $19,999 in the first income year (2016/2017).  The real benefit (i.e. the effect of the tax deduction in dollar terms) the company would receive from this is $5,699 in the first year ($4,844 more than under the old rules – i.e. the benefit is brought forward rather than spread out and therefore assists the company’s cash-flow). 
The company is then free to apply this brought-forward cash immediately (e.g. pay off debt or re-invest in the business etc).  In the second income year, there is no further depreciation of this asset as it has been written-off completely.  This means that the company is paying more tax in the second year relative to the earlier scenario (but no more and no less tax overall).
This Case Study illustrates the importance of meeting the 30 June 2017 deadline this financial year.  After this date, the write-off threshold reverts back to $1,000.

ASSET ELIGIBILITY
Having determined that a business is eligible, the asset itself must be eligible for the write-off.  Basically, all depreciable assets (including second-hand assets) used in a business are eligible for the $20,000 write-off – including motor vehicles, furniture, computer equipment, machinery etc.  The following assets are however, specifically excluded from the write-off as they have their own unique depreciation treatment:

  • Horticultural plants
  • Buildings (these are dealt with under the Capital Works provisions)
  • Primary production assets for which an entity has chosen to use the Uniform Capital Allowance (UCA) depreciation rules rather than the small business depreciation rules, and
  • Assets leased out to another party on a depreciating asset lease.
Financed assets are also eligible.  Assets that are the subject of a commercial loan, chattel mortgage or hire purchase would all qualify.  Assets that are the subject of a lease however do not qualify for the write-off due to the fact that the ownership of the asset under lease remains with the finance company.

SBEs can access this instant asset write-off concession simply by claiming the write-off on the business’s return (or your personal return if you are a sole trader).

SIMPLIFIED PAYG INSTALMENTS

SBEs that report and pay PAYG instalments quarterly can elect to pay instalment amounts worked out for them by the ATO (known as ‘Option 1’).  This ATO fixed dollar amount is then printed on your quarterly Activity Statement at label T7 or your instalment notice.  Adopting this option can save you time in working out the instalment amount you need to pay.  It also removes the risk of under or over estimating PAYG instalments and the resulting penalties that may be applied by the ATO.

You can choose this option in your first quarter of the income year (typically, this is the Activity Statement or instalment notice due in October).  Once chosen, this option applies for the whole of the income year.

TAX TIP
Where you elect to pay using Option 1, you are still permitted to vary the ATO instalment amount if your current year business or investment income is trending less than last year.  This may be the case where for example:

1. You are downsizing
2.  You are experiencing reduced sales compared to last year
3.  Your expenses have increased from last year.

In making a downwards variation, be aware that penalties may apply if your variation results in you, or your business, paying an amount that is less than 85% of the actual tax payable on your business and investment income for the financial year.  Therefore, before you make a variation, consult your Accountant.

SIMPLIFIED GST INSTALMENTS

In a similar vein, SBEs may be eligible to pay their GST liability on an amount worked out for them by the ATO – therefore, decreasing administration time for your business.  The ATO will notify you of your eligibility on your business’ first quarterly Activity Statement for the year (generally the September quarterly Statement).  If you choose to use this method you must inform the ATO by selecting this option on that Activity Statement.  Generally, your business will be eligible where your business:

  • Is a SBE (see earlier criteria, and note the proposed increase in the turnover threshold to $10 million)
  • Is not required to lodge your Activity Statements on a monthly basis and have not elected to do so
  • Has a current lodgement record of at least 4 months
  • Is not in a net refund position.

Note that even if you are eligible, your election can be disallowed if your business has a history of failing to comply with your tax obligations.  The benefit of this concession is that it saves you time in working out the instalment amount you need to pay.  It also removes the risk of under or over estimating your GST instalments and the resulting penalties that may be applied by the ATO.