SMEs Set to Benefit from New Company Tax Relief

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The Australian government and crossbench senators have agreed on legislation that would cut the company tax rate for taxpayers with a combined turnover of as much as $50 million.

With $24 million in estimated cost over a 10-year period, the measure is intended to foster economic activity and employment from small- to medium-sized enterprises.

Cut in company tax rate

The company tax rate reduction will be implemented gradually over 10 years beginning in the 2016-2017 income year. This is how the reduction will occur during the first phase:

Income Year                                                                                   Turnover Threshold

<$2m >$50m <$25m <$50m >$50m
Existing Rates 28.5% 30% 30% 30% 30%
2016-17 27.5% 27.5% 30% 30% 30%
2017-18 27.5% 27.5% 27.5% 30% 30%
2018-19 27.5% 27.5% 27.5% 27.5% 30%

Concessions for small business entities

In addition to the company tax cut, there is another measure in the legislation that would aid small businesses. Effective 1 July 2016, a small business entity (SBE) will be defined to include all entities with a combined turnover of under $10 million. Previously, the figure was $2 million.

These entities will be entitled to the following concessions:

1. Immediate write-off for assets amounting to less than $20,000 each

This concession allows SBEs to write off assets amounting to not more than $20,000 rather than depreciate them over their effective life. It is scheduled to culminate on 30 Jun 2017, thus SBEs need to be quick to be able to claim this concession.

2. Streamlined depreciation for other assets

For assets that cannot be immediately written off, SBEs can combine eligible assets together and depreciate it at 15% for first-year assets and at 30% for assets bought in previous years. This will give SBEs a bigger up-front depreciation claims.

This concession also ignores the purchase date as it relates to calculating depreciation, allowing businesses to obtain a full-year depreciation in the year of purchase.

For instance, an equipment amounting to $100,000 bought on 1 June 2017 would be entitled to a depreciation of $15,000 in the 2016-2017 year and $25,500 in the 2017-2018 year. In the past, SBEs could only claim one month’s depreciation in the year of purchase and probably at lower rates than 30%.

3. Up to 12 months of prepayments

Business taxpayers typically apportion prepaid expenses over the appropriate period. With this concession, SBEs can obtain an immediate deduction for prepayments of up to 12 months. Taxpayers who have been out of the arsenal since 2000 can use this as a tax planning tool.

For instance, you can get an immediate tax deduction from prepaying 12 months interest on a business loan in June 2017 in your income tax return for that year.

4. Reduction of amendment period from 4 years to 2 years

Those who qualify as an SBE can have their assessment amended for up to 2 years. The disadvantage is that taxpayers will be locked into their own tax positions and will be unable to request for a refund beyond the two-year period.

For instance, an SBE that files its 2017 tax return on 30 September 2017 has until 30 September 2019 to amend the tax return to raise or reduce tax payable.

5. More concessions

  • The Small Business Restructure Rollover will be implemented to allow the reorganization of existing family groups.
  • The start-up costs in establishing a business can be deducted immediately instead of deducted over a 5-year period.

Notably, small business capital gains tax concessions are not covered by the new $10 million turnover limit. The limit for this stays at $2 million.

These measures are generous and are intended to aid small- to medium-sized businesses and provide them with a few tax planning opportunities.

If you qualify as an SBE and you have questions about these new tax changes, contact PJS Accountants. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Meet with one of our expert advisers now and ensure you are always compliant with ATO rules.

What You Need to Know About Car Salary Packages, FBT and After-Tax Running Costs

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One of the popular remuneration schemes for employees is including a car in a salary package. Doing this as part of a salary sacrifice package will result in a ‘novated lease’. Another item that can be salary sacrificed is costs in operating the vehicle. This is commonly called ‘fully novated lease.’

Under a novated lease, the employee, the financier and the employer enter into a three-way agreement. The car will be owned by the employee, and the lease payments will be made by the employer to the financier as well as the any running costs for the vehicle as a condition of giving the car to the employee.

A ‘deed of novation’ will be signed by the employer, the financier and the employee (as the lessee) under which the employer agrees to take over all or part of the lessee’s rights and obligations under the lease of the employee’s vehicle. The employee will normally assume the lease obligations when his/her employment ends.

Aside from the car repayments, the employer would also typically pay for the vehicle’s running expenses, such as registration, insurance, fuel and maintenance.

Fringe Benefits Tax (FBT)

There is a car FBT involved under a fully novated lease. The employer must establish any FBT liability using the statutory formula method as the default, or instead choose to use the logbook method.

Through the employee contributions method, the FBT can be lowered by the employee paying after-tax contributions to the running costs. This is done when the employer agrees to pay the running costs from a combination of an employee’s pre-tax and post-tax income under the salary sacrifice scheme.

Deductibility of after-tax running costs

Can the running costs incurred by the employee from their after-tax income be deducted from their personal return?

If yes, can the employee either use the cents per kilometre method or the logbook method, or any other method, to claim a deduction for the vehicle’s running costs?

When expenses deductions are denied

Generally, the expenses incurred by an employee from using a car provided by an employer are explicitly denied as a deduction under the law.

The instances in which a deduction for ‘car expenses’ is denied include:

  • an employer during a period provides a car for the exclusive use of a person who is, or of persons any of whom is, an employee of the employer or a relative of such an employee, and
  • at any time during that period, the employee or a relative of the employee is entitled to use the car for private purposes.

‘Car expenses’ are defined under the law as any loss or outgoing that relates to a car (including expenses in operating the car and its tax depreciation). In addition, deduction is not allowed for car expenses that are incurred:

  • during the relevant period in which the car was provided, or
  • is wholly or partly attributed to that period.

Also note that a deduction is denied if the car is used by a person other than the employee, such as relatives or spouses. In this situation, the employee is not allowed to claim a deduction for the running costs in relation to the car – whether by using one of the methods stated above or as a general deduction. This is because the novated lease agreement specifies that the car was provided to the employee for his or her exclusive and private use.

However, regardless of what was stated above, an employee can still gain from such deal. The after-tax payments for the vehicle’s running costs trims down the FBT sum that would have been obligated to salary sacrifice as part of the overall remuneration.

If you have more questions about car salary packages, FBT, and the deductibility of after-tax running costs, consult your accountant, or contact PJS Accountants. We offer accounting and other bookkeeping services to individuals and companies, big and small. Allow our team to evaluate your business and advise you on the right measures to create an excellent financial management strategy for you.

Key Legal Implications of Having a Company Car

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A car can be used as an incentive for employees. Employees can use an executive car to meet with their clients. A truck or van can be used to deliver your products. These and more are many reasons why investing in a car for your business makes sense. But having a company car isn’t without its legalities. Here are some of them:

Costs, leases and taxes

You, as the business owner, are required to pay for various expenses including the registration, insurance, maintenance and the fuel costs of your vehicle. You have to factor in these items when you’re planning for the purchase of a vehicle or fleet.

The company, an employee and a leasing company may enter into a 3-way agreement to pay for a car. This is called a novated lease. The lease payments are made by the company using the pre-income tax of the employee. This reduces their taxable income and they get a car. Draw up a contract that lays out clearly the conditions and the costs for using the car.

The business owner may have to pay the FBT, or fringe benefits tax, if you or your employee uses the car for private reasons:

  • Parking the vehicle at or near an employee’s house, even if they’re not allowed to utilise it privately
  • Parking the vehicle in house that is also used as a place of business
  • Driving the car to and from the office.

Ask your tax agent for more information about novated leases

Vehicle surveillance and employee privacy

A car is an investment, so it’s wise to track its location for security reasons. GPS trackers will do the task of telling the vehicle’s location, speed and other information. There is no law yet in Queensland requiring an employer to inform their employee if they plan to install such device. But it is still a good idea to notify your employee.

Accident and damages

If the company car gets involved in an accident, the business owner is liable for the cost of damages even if the vehicle was being driven by the employee. The amount may be claimed from your insurance, but you may have to pay for the excess.

In some cases, you will not be required to pay for the damage. These may include:

  • If the employee was driving the vehicle to work but got into an accident while doing something illegal such as driving under the influence of an illegal substance.
  • If the employee was driving to work but intentionally caused the accident
  • If the employee was driving the car for private purposes.

Know more about the legalities of company vehicles by consulting with your accountant. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

Substantiation Requirements for Home Office Deductions

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Same as other deductions, records for home office expenses must be kept for five years.

But in reality, it may be difficult to fully comply with the ATO’s substantiation requirements. While it may be easy to keep the receipt for a printer bought for your home office, proving the deductible proportion of a particular utility bill may not be so. To solve this problem, some administrative guidelines have been provided by the ATO.

Substantiating business use proportion

There are three methods for computing the business use proportion for a specific expense. Here they are in order of preference by the ATO:

  1. Explicit proof of business use, like an itemised phone bill.
  2. Records of representative periods of use, like a diary record covering a period of 4 weeks (details below).
  3. A ‘reasonable estimate’, this term is not defined by the ATO, but the taxpayer is required to show that a particular item was ‘reasonably likely’ under the circumstances.

4-week representative records

Claims over $50

The taxpayer is required to save records for a 4-week representative period in every income year so that they can claim a deduction exceeding $50. Whether the $50 cap applies for every expense type or in total is not clear.

The taxpayer can elect to maintain records for more than 4 weeks or to use their deduction on itemised bills (see above) for the full year as the basis for a more accurate deduction. The 4-week record is just the least amount of record-keeping that the tax office will take. Providing a time-limited representative record such as the 12-week logbook for car expense deductions is not a legal requirement.

Don’t forget to correct the deduction for the number of holidays taken.

Proof that the employer expects the taxpayer to work from home or make business-related calls will be looked at favourably by the ATO. But note that the employer expectation is not required by law. According to regulation and common law pertaining to work-related costs, that costs are incurred while earning assessable income and are not personal, domestic or capital in nature is sufficient.

Claims of $50 or below

Though it is not explicitly stated, it can be inferred that the ATO will not be undertaking substantiation checks on claims of $50 or less. But this only applies to the substantiation of the amount, and the taxpayer is still required by law to deduct the amount. Thus, it would be wise for the taxpayer to keep evidence that some work was undertaken from home during the year.

Shared expenses

The ATO accepts an invoice in the name of one person as proof of shared expenses. This may apply if spouses or housemates in shared accommodations each carry out work from home, using shared utilities.

If you have questions or need assistance about home office deductions, contact PJS Accountants. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Meet with one of our expert advisers now and ensure you are always compliant with ATO rules.

Facts that Taxpayers Need to Know About Private Rulings

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For taxpayers who could be thinking that the ATO’s recent move to improve and streamline private ruling applications translates into “open slather”, here are some sober facts you need to know.

Of course, taxpayers who are worried that their situation may place them in an unfamiliar spot tax-wise can apply for a private ruling. Examples of these situations may be a specific transaction or occasion that does not fit any recognised method for tax purposes, or an individual seeking to minimise the chance of having to pay an exorbitant amount of tax as a result of an unusual financial arrangement.

By applying for a private tax ruling, you can test drive a tax deal that you may be thinking about, particularly if you can’t find any existing information from the ATO that applies to it.

But remember that these decisions are one-off, that is, each ruling is specific to whoever applied for it. This means a ruling cannot be used as a benchmark by other taxpayers.

Similarly, if a taxpayer finds a ruling and decides to use it because their situation seems to be roughly similar, they must know that they will not be protected from using that ruling if the ATO decides that their circumstances should have had another result.

The word “binding” is included in the term used for these rulings. This signifies that if you obtain a private ruling from the ATO, and decides to apply it on your tax situation, the ATO is normally obliged to dispense the tax law as provided in that ruling.

Aside from income tax laws, private rulings can also cover luxury cars, goods and services tax and other indirect taxes. You can also apply for a private ruling if you need a resolution on whether an activity is a business or a hobby, or what the value of an item is.

PJS Accountants can represent you in applying for a private ruling, or you can lodge it yourselves. For businesses, the application can be filed by a public officer, a trustee of a trust or a partner of a partnership.

Lastly, ensure that you are aware that just because they requested you to apply for a private ruling, doesn’t mean you would automatically get one. The ATO can reject the request if it believes a ruling would restrict or prejudice the law. It can also deny the application if an audit is being conducted on your client on the same matter, or if their application is deemed as “frivolous” or “vexatious” by the ATO.

Are you considering filing an application for a private ruling with the ATO? The process has been made easy, but it is recommended that you seek the help of your accountant, or you can contact PJS Accountants. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Meet with one of our expert advisers now and ensure you are always compliant with ATO rules.

The ATO Reveals What Attracts Its Attention

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According to the ATO, there are particular behaviours, characteristics and tax concerns that draw its notice.

But because it concentrates more on making sure that taxpayers get things right rather than on the trouble and costs of pursuing every tax offender, the tax office has revealed the incidents or circumstances that are more likely to raise a red flag.

Below are the behaviours and characteristics that may land you in trouble with the ATO:

  • Tax or economic performance is not comparable to similar businesses
  • Low transparency of tax affairs
  • Huge, one-time or odd transactions, including transfer or shifting of wealth
  • A record of aggressive tax planning
  • Tax outcomes that conflict with the objective of tax law
  • Electing not to follow or habitually taking contentious interpretations of the law
  • Standard of living not substantiated by after-tax income
  • Managing private assets as business assets
  • Using business assets for tax-free personal use
  • Poor governance and risk-management systems.

Also, the ATO’s risk antennae is more sensitive to certain matters of taxation, such as CGT, FBT, private company profit extraction (including Div 7A), the taxation of financial arrangements, and more. The use of trust is also included in this list.

Trusts

With trusts, there are a number of compliance issues that draw the ATO’s attention, such as the distributions from discretionary trusts to SMSFs, which “are subject to the non-arm’s length income rules and the amount is treated as non-arm’s length income and taxed at the highest tax rate of 45%”.

The ATO’s pays particular attention to the following details:

  • The complying superannuation fund (generally SMSF) is a beneficiary of a trust.
  • The trust is not a fixed trust (or one with fixed entitlements to income) and is not widely held.
  • Distribution by trust to complying superannuation fund.
  • Superannuation fund does not report amount as non-arm’s length income.

Differences between distributable and taxable income, and distribution to tax-preferred entities

Of particular interest to the ATO is the differences between distributable and taxable income of a trust and its taxable (or net) income, which can be used by individuals getting the monetary benefit of trust distributions to escape paying tax on them.

The setups consist of:

  • The trustee settles on a drastically decreased trust distributable income contrasted against the trust taxable income.
  • The inclusion of a tax concessional beneficiary to receive entitlement to the small trust distributable income along with the huge liability to tax generated from the trust taxable income.

Here are the possible circumstances for the tax concessional beneficiary:

  • Have huge losses in the past year.
  • Have minimal resources that are insufficient to cover the tax liability arising from the distribution.
  • Be assessed at a significantly lower rate (or not at all) than those ultimately getting the monetary benefits through this setup.
  • While these situations may generally be the standard, they are not standard where the trustee directs the trust’s distributable income for this purpose.

Another red-flag to the ATO is distributing mostly to tax-preferred entities. This is a situation where a beneficiary is exempt from tax, in a loss circumstance or is a newly-established company.

Treating income as capital

The ATO also has their eye on trusts that are running a business of divesting an asset as part of an income-generating operation. It is the job of the tax office to make sure these trusts are not claiming the 50% CGT discount on the profits earned by selling an asset, or establishing this as part of a business.

The ATO says: “Inappropriate characterisation as capital can occur where property developers set up special purpose trusts and report any profits from the ultimate sale of the property on capital account in order to claim the 50% CGT discount. These profits should be on revenue account for tax purposes because the property is sold as part of a profit-making undertaking.”

The ATO advises that if you have concerns about a particular tax or super position to (1) seek guidance from the ATO or (2) request a self-amendment or make a voluntary disclosure to correct a mistake.

See a qualified tax advisor, accountant or bookkeeper if you have questions or concerns about tax matters. This will prevent you from making a mistake, or worst drawing the attention of the taxman. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

ATO: Real-Time Checks for Tax Returns and the Dodgiest Work-Related Deductions

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Small business owners should be wary of filing the wrong work-related tax claims, as the Australian Tax Office (ATO) has introduced real-time checks for online tax returns for 2016.

Revenue adjustments of over $1.1 billion in income tax followed as a result of the ATO conducting about 450,000 reviews and audits of individual taxpayers in the 2014-2015 financial year.

Data analytics is used by the tax office to compare individual tax returns to those filed by taxpayers in the same situation. A review by the ATO staff is launched if a “red flag” is raised. Processing the returns can be delayed when this happens, and in cases where a person purposely claimed the incorrect amount, a penalty may be imposed.

For 2016, work-related tax deductions will be checked in real-time by the ATO. If claims are significantly higher than others in the same jobs, earning the same salary, individuals will receive a message requesting them to check their information.

This process is designed to help taxpayers make sure that they are filing claims correctly. People have nothing to worry about if they are not doing anything wrong. If you’ve committed a blunder, the tax office will help you fix it. You will not be penalised if it was an honest mistake.

The ATO from time to time comes across people who intentionally make incorrect claims. Examples include claims for auto expenses where log books have been fabricated and claims for self-education expenditures with invoices for conferences that the taxpayer didn’t attend.

It is important for business owners who prepare their own tax returns to be aware of what they are lawfully allowed to claim. They need to ensure their log books are up to date and that there is no confusion between personal and business expenses – on items like motor vehicle and home office expenditures.

Both the ATO and CPA websites offer advice on claiming deductions for free. And any person who is seeking professional advice should consult with a registered tax agent.

Dubious work-related expense claims spotted by the ATO

Here are five cases of individual taxpayers that the ATO calls “dodgy” work-related tax deductions:

  1. A “wine expert” filed a claim for thousands of dollars in expenditures related to a holiday in Europe, including cases of wine worth $9,000, on the premise that he went to wineries while travelling. All the deductions were disallowed after the employer said the claims were for personal expenses.
  2. A medical professional was heavily fined after filing a claim for costs incurred while going to a conference in America, when the truth was they were in Australia when the conference was on-going.
  3. A railway guard filed a claim of $3,700 in work-related auto expenses, which he said was incurred by him carrying large tools between his home and workplace. But the ATO found out from his employer that the instruction manuals and safety tools could be keep securely at the workplace. This led to the ATO disallowing the expenses because it was the employee’s decision to move the equipment.
  4. An individual who was attending a study program filed to claim deductions totalling $5,700 for leasing a property and $7,500 for renting a storage facility, on the premise that he was using both spaces for peace and quiet while studying as he couldn’t do this at home. The ATO disallowed the claims.
  5. The ATO disallowed a taxpayer’s claims for auto expenses after it was discovered that the kilometres stated in the log book were during the days when the taxpayer was overseas and the car had no record of passing through toll road areas.

Contact PJS Accountants for tax advice. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Tax laws and requirements change constantly, potentially putting you or your businesses at risk. Talk with one of our expert advisers now and ensure you are meeting your tax obligations.

New Tax and Legal Changes for Businesses Effective 1 July 2016

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Many changes for Australian small and medium businesses come on 1 July each year.

With the new financial year now underway, there are a host of tax and legal changes that SMEs need to know about.

Here are the changes that SMEs need to know about:

Rise in minimum wage

Effective 1 July 2016, the Australian government has increased employees’ minimum wage by 2.4%. Full-time employees can now receive a minimum of $17.70 per hours, or $672.70 weekly, up by about $15 weekly.

It is important for businesses to know about this as all awards must change to mirror the new minimum wage.

Amendments to the country of origin labels

The changes to the country of origin labels also became effective on 1 July 2016. With the changes, consumers will be able to get more information as to the origin of the ingredients in the products they are purchasing. In the past, the information on whether a product was made or grown in Australia is included on product packaging. But now businesses are required to specify on the packaging the smallest proportion of Australian ingredients by percentage.

A good number of businesses in the food sector would already be informed about these changes, but still businesses have been granted a two-year grace to implement the new labels. The new rule would then be mandatory effective 1 July 2018.

Change to the high-income cap for unjust dismissal

Starting 1 July 2016, the high-income limit for unjust dismissal has been upped to $138,900 per year from $136,700. The government has also increased the compensation threshold for unjust dismissal claims from $68,350 to $69,450.
Business owners should also know that unjust dismissal rules now include employees with earnings above $136,700 and below $138,900.

Amendments to SMSF laws for collectables and personal use assets

Self-managed superannuation (SMSF) funds having collectables and personal use assets owned before 1 July 2011 will no longer be exempt effective 1 July 2016. These assets include items such as jewellery, artwork, boats, vehicles and wines.
The ATO now requires that such items be made solely for retirement purposes, not for present-day benefit.

Tax break for people wishing to change business structures

Qualified small businesses will no longer incur capital gains tax liability when they change the legal structure of their business.

The new rules give qualified small businesses access to an optional rollover provision when they hand over an active business asset to another small business entity as part of a real business structure change. But businesses have to be eligible by not changing the “ultimate economic ownership” of the asset.

Four months to prepare for SuperStream

The deadline for small businesses to comply with the ATO’s SuperStream system was originally 30 June 2016. However, the deadline has been extended to 28 October 2016.

Under SuperStream, small business owners are required to pay the super contributions for their employees electronically in a standard data set.

Small businesses that missed the original deadline will not be subjected to any compliance action.

Meet with a qualified tax advisor, accountant or bookkeeper for tax enquiries and to be updated with legal and tax changes. PJS Accountants can help you organise your tax affairs. We work with large companies, SMEs, family businesses and individuals. For enquiries, contact PJS Accountants.

Protect your Assets through Family Trust

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A vital part in planning your will is the creation of a family trust. It can entail terms and conditions to protect your assets that you will leave behind and guide your family in handling the financial consequences of inheriting your wealth.

Testamentary trust

The Australian Tax Office (ATO) defines testamentary trust as a trust that is created in keeping with an individual’s provisions in their will. To be exact, the trust doesn’t exist till the individual who wrote instructions in their will dies.

When this happens under the provisions of the will, the beneficiaries could be offered the alternative of gaining their inheritance within a testamentary trust, instead of coming into it directly.

By creating a testamentary trust, you make sure that a trust over your estate is set up on the day you die, meaning that your fortune will not be distributed directly to your beneficiaries but will be held on behalf of your beneficiaries through a trusted organisation or person.

Testamentary trusts have different kinds. In estate planning, however, a testamentary trust is discretionary, meaning the trustee can decide which beneficiaries named will receive capital or income from the trust fund.

Why provide for the creation of a trust in your will?

Not everyone can benefit from setting up a discretionary testamentary trust. However, for people to whom it is the right option, the benefits are:

  • Tax effectiveness
  • Protection of the bequeathed assets

Tax effectiveness

As an example, a husband or a wife dies leaving behind two children and a spouse. A standard will provides that the spouse who died would leave their fortune to the surviving spouse. Normally, if both husband and wife die they will instruct that their wealth be distributed equally among their children.

In this case in which only one spouse dies, the estate’s assets would go to the surviving spouse.

The spouse still living would then be taxed on the income and capital gains made from those assets using his or her marginal tax rate. This means the amount of tax could increase considerably and any unearned earnings shared to the offspring below 18 years old would be covered by a penalty tax rate.

When there are children or grandchildren below 18, inheriting assets under a testamentary trust can provide more tax advantages. The reason is that Division 6AA of Part III of the Income Tax Assessment Act provides that a child below 18 years of age who get income from a trust created through a will would be covered by adult tax free threshold of $18,200, for 2012-2013 and 2014/2015, and marginal tax rates.

Protection of assets

What this means is the wish to make sure that the wealth is kept in the family for the gain of immediate loved ones.

Asset protection is also important in the event of a marital breakdown. People prefer that their wealth is inherited by their lineal descendants and not to worry about half of their fortune being given to a child’s former spouse.

Another motivating factor in creating a testamentary trust is the protection against a child’s bankruptcy, as the assets are held by a trust instead of turning into the direct asset of the child.

Another case where a testamentary trust may be useful is when there is a child with disability. It allows for the assets to be utilised for the benefit of the disabled child who may not be capable to managing financial matters after their parents die.

Things to consider when setting up a trust

Before setting up a testamentary trust, here are a few things to consider:

  1. Know the amount of asset it becomes beneficial to create a testamentary trust. Testamentary trusts basically bring the biggest advantage for massive estates with several children.
  2. Work out who you will name as the trust’s trustee – of which you are allowed to name more than one. One trustee can be an independent third party such as an accountant or a lawyer, and the other trustee is the trust’s main beneficiary.

There are people creating a will who may want to think about naming an independent trustee because they want to make sure that every beneficiary’s best interests are taken care of and the sharing of assets is not affected by factors like family politics. Doing this offers an additional level of safeguard over assets.

On the matter of considering the structure of the trust, it is best to consult an expert, such as an qualified accountant specialising in estate planning or an estate planning lawyer.

PJS Accountants offers a full range of services, including tax planning and compliance, accounting and SMSF services, and bookkeeping. For enquiries regarding our services, contact PJS Accountants.

ATO Eyes Sharing Economy

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The Tax Office is setting its sights on the $500 million sharing economy, which consists of various platforms that let hundreds of thousands of Australian earn a bit of cash on the side by renting their spare rooms and parking spaces, lending their cars and driving people around the city.

In 2015, the ATO hit Uber with GST duties. And there are whispers that Airbnb will be hit next.

The sharing economy is turning out to be a significant player in the country’s economy. According to a study by Deloitte Access Economics, 53 per cent of Australian consumers had engaged in some type of sharing economy in 2015, and 63 per cent intended to do the same in the near term, as sharing rises in popularity as a form of business.

With an increasing number of players earning half a billion dollars annually, the ATO wants its share of the pie.

Declare every cent

Concealing income from the ATO is not only illegal, but also very risky in the digital age, according to CPA Australia Head of Policy Paul Drum. Now, the ATO has the capability to review transaction data with just a flip of a switch. Data matching can easily uncover how much each Uber driver or Airbnb host earned over a financial year based on the amount of commissions Uber or Airbnb received from each ride or stay.

There is no truth to the common belief that you don’t need to declare irregular or on-off transactions. Everything you earn from the first dollar is taxable income.

For Airbnb hosts, the only exemption from having to declare income would be if the gross income from all sources is less than the tax free threshold of $18,200.

Also, Airbnb hosts don’t need to be concerned about registering for GST, because residential lodgings are exempted. However, Uber drivers are required to pay GST on each dollar.

Homeowners who rent out a room may also not be aware that they risk missing out on their capital gains tax exemption if they choose to sell up in the future.

The exemption for Airbnb hosts varies on a pro rata basis, depending on the size of the space rented out and how long the bookings are. If you plan to be a host, you have to consider this in your financial modelling, and determine whether your side business is worth it in the end.

On the positive side, hosts are entitled to deductions for costs incurred the entire year if the home is listed on Airbnb the entire time – though they only received one or two bookings that year.

Tax tips

Here are some of the rules that sharing economy participants should follow:

1. Never conceal your income

Whether you earn extra cash or get your main income as an Airbnb host or Uber driver, you are required to declare these moneys on your tax return. Record your income and don’t cheat on your tax return. If you cheat, you may end up owing back taxes and be made to pay fines, penalties and interest charges.

2. Don’t squander your money

You may find it appealing to consider the extra cash you made through Uber or Airbnb as a perk toward your rent, paying off your car or even as a reason to indulge in shopping. But just as your earnings are increased by using Uber or Airbnb, so is the tax that you must pay. You might be in for a surprise at tax time if you fail to save some of your income. To minimise your risk, save at least 30 per cent, even 40 per cent, of what you earn from Uber driving or Airbnb rental during the first year.

3. Monitor your spending

If you have to purchase an item to operate your Uber or Airbnb, you are entitled to claim a part (or the whole) of that amount at tax time. What you need to remember is to save a record of your spending for you to file a claim.

4. Identify what you are entitled to claim

If you are leasing out a space or an entire apartment, you are entitled to claim expenses and deductions for that part of your house that was rented out, for the length of time it was occupied. These items include internet and phone bills, utility and council rates, and depreciation of furniture.

As for ridesharing drivers, they are entitled to work-related costs such as insurance and registration expenses, car maintenance, repairs and cleaning expenses, as well as mints, water and music streaming costs. If you are using Airbnb, you are entitled to claim other extras, but one critical item you should claim is your mortgage interest.

5. Be aware of your tax duties

You should know how the sharing economy affects your tax duties, else you could get lost in the process. One important thing to remember is to hire the services of a good accountant if you are not sure what your tax obligations are.

For tax advice, contact PJS Accountants. We offer expertise in managing your tax affairs with a full range of compliance, corporate and individual tax services, whether you are a large company, SME, family business or individual. Tax laws and requirements change constantly, potentially putting you or your businesses at risk. Chat with one of our expert advisers now and ensure you are meeting your tax obligations.