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Business Tax Tips – Can I claim Home Office Expenses?

Business Tax Tips - Can I claim Home Office Expenses?

Business Tax Tips – Can I claim Home Office Expenses?

Many clients ask “Can I claim Home Office Expenses?” There is great information on the ATO website, and links for more info and a cool expense calculator, as part-reproduced here –

If you are a sole trader and your home is also your place of business you can claim tax deductions for a portion of the costs of owning, maintaining and using your home for this purpose. When you sell your home you may be liable for capital gains tax.

If you operate a business at or from your home, you may be able to claim a deduction for some of the expenses relating to the area you use for business purposes.

These expenses can be divided into two broad categories:

  • Occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums);
  • Running expenses (such as gas and electricity, phone, decline in value of plant and equipment, decline in value and cost of repairs to furniture and furnishings, cleaning).

As for motor vehicles, if you are carrying on a home-based business you can claim the cost of trips between your home and other places if the travel is for business purposes.

Generally, you can ignore a capital gain or loss you make when you sell your home, unless you have used any part of it for business purposes.

Next step:

Home office expenses calculator

Disclaimer:

  •  All outcomes provided by this calculator are based on the information you provide and the deduction rates available at the time of calculation. You should use the outcomes as an estimate and for guidance purposes only;
  • You need to self-assess your eligibility and entitlement to a deduction for home office expenses before using this calculator.

Warning – Capital Gains Tax on Sale of Home

Be aware that if you claim home expenses for business, then Capital Gains Tax may apply if you sell the home.

The ATO explains further (and gives examples there)  –

Generally, you can ignore a capital gain or loss you make when you sell your home. However, you may have to pay CGT when you sell your home if you have used any part of it for business purposes.

CGT will not apply if any of the following apply:

  • You operate your business from a rented home;
  • You do not have an area specifically set aside for your business activities;
  • You operate your business through a company or trust.

In most cases, the portion of any capital gain on your home that is taxable is the same as the portion for which you could claim a deduction for interest. Generally, this is based on the floor area of your home you have set aside for business, for example 10%.

You do not have to pay CGT for those periods you did not use your home for your business.

If you have a capital gain because you use your home for business purposes, you may be able to apply one or more of the small business CGT concessions to reduce your capital gain.

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Business Tax Tips – Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Business Tax Tips – Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Beware – Claiming “I didn’t know” is no excuse with the ATO and can lead to fines!

Beware of your liability as a small business owner for tax credits you have claimed, or not knowing what your bookkeeper/wife is reporting in your BAS and tax returns – ignorance is not an excuse with the ATO! As Terry Hayes relates in Smart Company about a carpenter in a recent Dispute with the ATO –

While it’s often said that lawyers and accountants are their own worst clients, or doctors are their own worst patients, taxpayers too can be their own worst clients when they represent themselves in disputes with the Tax Office.

This happened recently with a carpenter who represented himself before the Administrative Appeals Tribunal in a GST dispute with the Tax Commissioner.

In that case, the AAT upheld the Tax Commissioner’s decision to impose on the taxpayer a 50% administrative penalty on the basis of “recklessness” because he had over-claimed GST credits.

The taxpayer is a carpenter by trade, a sub-contractor in the building industry. He is a sole trader and has no employees. The Commissioner audited his Business Activity Statements for the period 1 January 2007 to 30 June 2010 and found he had over-claimed input tax credits. The BASs showed that claims for ITCs exceeded his GST payable in all but six out of the 42 BASs lodged in the relevant period. The tax shortfall amount was around $130,000 and the penalty imposed was some $65,000 based on 50% of the shortfall amount.

The taxpayer said that his wife prepared and lodged his BASs and that he never reviewed them or any of the supporting documents, including the invoices that he kept in a box in the linen closet which, as it transpired, did not substantiate his ITC claims. He also did not keep vehicle log books. Nor did he ever check any of his bank statements and so he was unaware that he was receiving GST refunds from the Commissioner over a lengthy period of time in the joint bank account that he had with his wife.

The taxpayer did not dispute the tax shortfall but argued he was not responsible for the penalty maintaining that it was the Commissioner who was mostly responsible for it. He alleged that Tax Officers had represented to his wife that he was entitled to claim ITCs for the purchase of his family home because he maintained a home office (although the AAT noted the settlement statement for the purchase of the home did not show any GST having been charged by the vendor to the taxpayer and his wife as the purchasers). Additionally, the taxpayer claimed it was the Commissioner that allowed the situation to go on for so long without him being audited.

The taxpayer also alleged that a car salesman had represented to him that he could claim back the GST on the purchase of two vehicles, but he accepted before the AAT that he was given wrong information by the salesman.

The taxpayer also stated that he had lost a lot of information about his purchases when his old computer died and that many other receipts that he had stored had faded and were illegible. The taxpayer contended that the mistakes in his BASs “were not made intentionally by his wife and that he had always been honest with the Commissioner”.

The taxpayer was self-represented. The AAT did not accept what the taxpayer said his wife was told by the Tax Officers or what the taxpayer said he was told by the car salesman. It agreed with the Commissioner’s contention that the taxpayer had over-claimed ITCs “for a lengthy period of time in circumstances where he knew or should have known that he was not entitled to claim the ITCs”. The AAT said the taxpayer had conceded he was “indifferent as to whether the BASs were accurate”. It also noted the taxpayer “never checked any of the BASs or whether he had the supporting documentation for the ITC claims because he thought everything was fine”. The AAT was of the view that the taxpayer “chose to leave the preparation of his BASs in the hands of his wife who had no taxation expertise”.

In the Tribunal’s view, the taxpayer’s conduct amounted to recklessness because there were foreseeable risks as to a tax shortfall where his BASs included claims for ITCs to which he was not entitled. The AAT said a reasonable person in the taxpayer’s position should have known about those risks. The Tribunal said the taxpayer “displayed complete indifference to the high risk of non-compliance in his GST affairs”. Game, set and match to the Tax Office on this occasion.

The AAT held the taxpayer had failed to discharge the onus of proving that the penalty was excessive. It held the decision to impose an administrative penalty of 50% was correct and that it should not be remitted in the circumstances.

Taxpayers must exercise care in their taxation affairs. They have that responsibility, and while they may claim they have no intention of making mistakes, that does not unfortunately stack up. Leaving the preparation of BASs to a family member (even if they are well versed in this), be it a wife or someone else, does not absolve the taxpayer from his or her responsibilities.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

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Business Tax Tips – Fringe Benefits tax – An overview

Business Tax Tips – Fringe Benefits tax – An overview

Fringe Benefits tax – An overview

The Australian Tax Office (ATO) is the best source to define many business tax issues and here are some extracts where they explain Fringe Benefits Tax (FBT).

1.1 What is a fringe benefit?

A fringe benefit is a ‘payment’ to an employee, but in a different form to salary or wages.

According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The ’employee’ may even be a former or future employee.

An employee is a person who is, was, or will be entitled, to receive salary or wages, or benefits in lieu of salary and wages. Benefits provided in respect of someone who has died are not fringe benefits as a deceased person does not meet the definition of ’employee’ in the FBT legislation. The terms benefit and fringe benefit have broad meanings for FBT purposes. Benefits include rights, privileges or services.

As a guide to whether a benefit is provided in respect of employment, ask yourself whether you would have provided the benefit if the person had not been an employee. When we refer to ‘you’ in this guide, we are referring to you as an employer.

1.2 Who pays the tax?

FBT is paid by the employer.

You will be an employer for FBT purposes if you make a payment to an employee, company director or office holder that is subject to withholding obligations, or if you provide benefits in lieu of such payments. These withholding obligations may apply to payments made to an Australian resident employee working overseas.

If you are an international organisation and provide benefits to employees in Australia, these benefits may be subject to FBT in Australia (keeping in mind that Australia has comprehensive double tax agreements with the United Kingdom and New Zealand, which currently include FBT).

As an employer, you pay FBT irrespective of whether you are a sole trader, partnership, trustee, corporation, unincorporated association, government or government authority.

This is regardless of whether you or another party provides the fringe benefit. FBT is payable whether or not you are liable to pay other taxes such as income tax.

You may claim an income tax deduction for the cost of providing fringe benefits and for the amount of FBT you pay.

1.3 Are you providing fringe benefits?

The following checklist will help you work out if you are already providing a fringe benefit to your employees. If any of the following apply, you may have an FBT liability.

  • Do you hold any cars or other vehicles that are available to employees for their private use, including a car garaged at the employees’ place of residence?
  • Do you provide loans at reduced interest rates to employees?
  • Have you released an employee from a debt?
  • Have you paid for, or reimbursed, an employee’s non-business expense?
  • Do you provide a house or other accommodation to your employees?
  • Do you provide employees with living-away-from-home allowances?
  • Do you provide entertainment including food, drink or recreation to your employees?
  • Do any of your employees have a salary package arrangement in place?
  • Have you provided your employees with goods at a lower price than they are normally sold to the public?

Fringe benefits have been categorised into 13   different types so that specific valuation rules can be used. These benefits are dealt with separately in their respective chapters in this guide.

A number of benefits are exempt from FBT. These include certain benefits provided by religious institutions and benefits provided by some international organisations and public benevolent institutions. In addition, there are some specific types of benefits that are exempt from FBT.

For more on reducing your FBT liability and what is not subject to FBT, read more here.

Need help? Not sure? Call for FREE 30min Advice / Strategy session today!

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!


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Business Tax Tips – Research shows how to increase revenue for small business especially start-ups

Business Tax Tips – Research shows how to increase revenue for small business especially start-ups

Research shows how to increase revenue for small business especially start-ups

If a 21% chance of increasing revenue / sales was possible by working with your accountant / advisor – would you do it?  Rose Powell reports on a survey in SMEs can make better use of their accountant to boost their bottom line“For the third of business owners who worked with an accountant as an advisor, one in five (21%) saw a rise in their revenue over the last year”.

Rose wrote – “Small business operators who used their accountant as a business advisor last year were 31% more likely to see an earning uplift, according to … research from the 2013 MYOB Business Monitor.

The vast majority of the 1005 business owners surveyed, 89% used an accountant last year.

Only 32% of owners reported having an advisory or consultative relationship with their accountant, compared with the 57% whose relationships were for compliance only, such as tax return completion or GST reporting.

Just 11% did not have an accountant.

For the third of business owners who worked with an accountant as an advisor, one in five (21%) saw a rise in their revenue over the last year.

Adam Ferguson, general manager of the accountants division at MYOB, told StartupSmart that using an accountant as an advisor was especially valuable for start-up companies.

‘The start-up phase of a business is very different to when it’s up and running. In that phase, your accountant can help with things like creating a business plan, applying for business loans, building out your business case,’ says Ferguson.

For start-ups who are already in operational phase, the increasing use of cloud accounting systems enables accountants to provide feedback and ask the right questions about compliance and cash flow.

Ferguson says cloud accounting means compliance is no longer a year-end process, and increasingly a monthly one. This makes them well placed to advise on cashflow questions.

‘An accountant can play a key role in helping a start-up, reporting on cash flow on a more regular basis, and understanding the dynamics that drive cashflow,’ says Ferguson.

The report found companies that worked with an accountant as an advisor were less concerned about attracting and retaining customers, and were more likely to increase their overall investment in their business strategies.

‘Once you’ve got your cash flow healthy, it becomes a question of how to use that and where to invest that to grow my business,’ says Ferguson.

Over half, 53%, said they found their accountant advisor provided useful advice on how best to manage the money that flows through their businesses.”

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!


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Business Tax Tips – Reconciling GST accounts in the Balance Sheet and GST Reports – How to understand

Business Tax Tips – Reconciling GST accounts in the Balance Sheet and GST Reports – How to understand

Reconciling GST accounts in the Balance Sheet and GST Reports – How to understand

A client was reconciling the GST accounts: Collected & Paid amounts on the Balance Sheet and GST reports, and wanted to know –

  1. The end of year Balance Sheet shows a different amount to the GST Accrual (& Cash) reports.  Why?            
  2. They thought that the GST Liabilities section of the Balance Sheet gets automatically updated when you enter a Spend Money purchase or raise a Sales invoice.  Is this the case?
  3. Or do we have a classification issue in our MYOB account set ups that we need to fix?

The answer is – the amounts in the GST accounts should reflect the way the transactions are created, and depend on whether cash recording (cheques and deposits or cash receipt sales) or accrual recording is used (invoice sales and purchases or bills).

Cash transactions recognise revenue sales and expenses when actual CASH is received and paid, ie when paid. The GST accounts will have the exact GST amount for each transaction, as and when paid or received.

Accrual transactions recognise revenue sales and expenses when the TRANSACTION occurs, not when paid. The GST accounts will have the GST  from the invoice or purchase.

If you report tax amounts for a period, keep in mind the way transactions are entered, as the GST on sales and the GST on purchases will not be picked up if reporting on Cash basis, and are not paid in the time frame. If they were paid, they would appear in the report.

Always check on screen the GST detail reports to see what transactions are picked up for the period, and after checking, if ok, PRINT to keep a record, then print the GST/Tax summary report.

The balance of the tax accounts also changes, as we post the amount reported to the ATO to them, reducing/increasing the account to reflect what is reported and paid (or refunded). So a tax payment during the period reported also changes the Balance Sheet amount. Look through the detail of the transactions in the tax accounts, and see what has occurred.

See also Cash and Accrual – will there be Debtors (Accounts Receivable – AR) and Creditors (Accounts Payable – AP)?

And for a quick summary of the reports suggested to check and use to prepare a BAS, go to MYOB – Aust. BAS Checks Reports & Entries

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia


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Business Tax Tips – Business Christmas party ideas – when things can go wrong

Business Tax Tips – Business Christmas party ideas - when things can go wrong

Business Tax Tips – Business Christmas party ideas – when things can go wrong

The festive season should be an enjoyable time of the year but are you aware of your obligation to provide a healthy and safe environment when planning business Christmas party/workplace functions? Don’t be complacent – prepare for when things go wrong…

If a function is organised, promoted and funded by the business, it is more than likely to be considered an extension of the workplace and therefore, your business should ensure it takes all reasonable steps to minimise any risk to the business.

When is the employer liable?

In most legal contexts, an employer function/staff party will be considered as part of the ‘workplace’ and having connection with the employment of employees. As such, all the duties and obligations of the employer that apply in the office, shopfront or yard will continue to apply for the duration of the function or party. In practical terms, this could mean the organisation (or even individual employees of the employer) could be held liable for occupational health and safety breaches for failing to provide a working environment that is safe and without risks to health.

Injuries or illnesses arising out of or in the course of the function may be compensable under statutory workers compensation schemes and inappropriate conduct or comments could lead to harassment or discrimination claims. Additionally, employees must also be aware that they may be disciplined for their actions at the party, as the terms and conditions of their contract and any applicable company policies apply for the duration of the function. The employer’s liability may be limited in some circumstances where the employee has engaged in serious misconduct or for instances that occur after the completion of the organised function. However, such exceptions are assessed on a case-by-case basis. In all circumstances it is clear the employer must be able to demonstrate all reasonable and proportionate steps were taken to educate staff on appropriate standards of behaviour, to provide a safe environment, and eliminate discrimination and sexual harassment.

Some tips to minimise your risk of things going wrong:

  • Plan your function – Select a venue wisely and provide all employees with the details of the function, including clearly communicating start and finish times;
  • Educate and set the rules – Ensure all employees are aware it is a work function and, as such, that the usual code of conduct and associated policies and standards of behaviour apply. Now is also a good time to review relevant policies and consider training employees in acceptable workplace behaviour. For example, Bullying and Discrimination awareness training for managers and employees;
  • Safety – Provide alternative transport options including designated drivers, Ubers and taxi vouchers.

Other Questions

Is the employer liable for the actions of employees at an ‘after party’ event?

Employers may be vicariously liable for the actions of their employees if such actions are in the ‘course of’ or within the ‘scope’ of employment. This will differ on a case by case basis, depending on the factual circumstances of each situation. As discussed above, advising staff of the clear finishing time of the organised function and avoiding sanctioning or funding any post-function activities will assist in reducing such liability.

Does the employer have to provide transport after the function?

Employers have a duty of care to provide a safe workplace environment to all employees. Legislation concerning liability for injuries sustained whilst travelling to or from the workplace (or a workplace function) differs from state to state, but the possibility of providing transport to employees after the event should be considered as part of the planning phase, but is not obligatory.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Call 0407 361 596 Aust and also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!


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Business Tax Tips – Managing Small Business Taxes and Obligations

Business Tax Tips – Managing Small Business Taxes and Obligations

Managing Small Business Taxes and Obligations

Running a small business has many extra requirements – one of the most important is planning for reporting and managing small business taxes. Here are tips for the ATO – Australian Tax Office, to get you organised –

Reporting and paying tax

As soon as you start up your business, you need to plan for how you will pay the tax you will owe each year when you lodge your tax return.

Paying tax in your first year

In your first year of business, you can stay on top of your obligations by:

  • making tax pre-payments into your tax bill account;
  • putting money aside for your expected tax bill;
  • voluntarily entering into instalments.

See also:

Paying tax by instalments

Once you lodge your first income tax return and report a tax-payable amount above a certain threshold, you will automatically enter the pay-as-you-go (PAYG) instalment system.

If you voluntarily enter into instalments prior to lodgment of your first tax return, you will be able to make quarterly payments towards you tax bill.

See also:

Reporting

Once you’re up and running, you’ll need to report your business income and other tax information. The key reports you should be aware of are:

  • Business Activity Statement (BAS) –

    • the main taxes you will report on will be GST (if you’re registered for GST)
    • any tax you withhold from employees’ pay
    • instalments towards your own tax once you are in the pay as you go instalments system;
  • Income tax return  
    • to report your personal and business income and claim deductions.

Most of your business reporting can be done online.

Next steps:

Get a FREE 30 min answer to your query, and FREE ongoing email or phone support – No-one offers as much! Call and you also get FREE “Avoid these GST mistakes” – There’s 18 that the Tax Office see regularly – Get them right!

Email info@accountkeepingplus.com.au or call 0407 361 596 Australia