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4 Tips to Help You Maximise Your Tax Returns Every Year

Tax season is one of the most stressful times of the year. No one will argue that tax returns have always been a difficult thing to manage. This is why hiring a tax consultant is pretty much a requirement if you don’t wanna miss out on receiving potential deductions. With that being said, you also shouldn’t be complacent just because you’ve hired an accountant to help you with your tax returns as there are still ways to increase your tax returns and make the most out of your refund.

There are small changes you can make that will help you get the most out of your tax returns and will make submitting your tax returns easier than it has ever been before. If you want to know more about this, read on for four tips to help you maximise your tax returns every year!

Prepare Your Taxes Early

A lot of the stress that comes with doing your taxes stems from the time constraint. Doing your taxes near the cutoff can put a lot of undue pressure on you. Aside from being stressful, rushing to beat the deadline makes mistakes more likely to occur. This can cause even more problems for you down the line. To avoid this, we suggest that you prepare your taxes as early as possible. Be sure to give your tax consultant all the information and documentation they need as soon as it becomes available to you.

Determine Your Tax Bracket

Aside from preparing early, working out your tax bracket accurately will also help you maximise your returns. The tax bracket that you are in will determine your tax obligations. Now, it’s important to note that tax brackets aren’t always the same year-to-year. This is a common mistake that people often make, as they falsely assume that they are in the same bracket they were in last year. To avoid this, be sure to review the individual and married income tax rates to truly know where you stand and what your obligations are when it comes to your tax bracket.

Review Your Deductions

While it may be obvious, it is something that has to be said: review your deductions. Failing to claim deductions is a missed opportunity as you could potentially be saving yourself a significant amount of money. We suggest checking with the Australia Taxation Office to see which deductions you qualify for.

Create and Use a Receipt System

Lastly, being more organized with your receipts is a great way to maximise your tax returns. While it may seem trivial, tracking and saving receipts is one of the best ways to save money during tax season. Instead of stuffing your receipts in random places, we suggest creating a system for them that allows you to organize and keep track of any and all relevant receipts. And while you can opt to physically organize them, we suggest making use of an app that allows you to digitise receipts as they tend to be more secure and easier to manage.

Conclusion

We hope these tips prove to be useful when it comes to helping you maximise your tax returns. Remember, doing your taxes doesn’t have to be stressful. By taking the time to be more organised and prepared, you make things infinitely easier for yourself.  

If you’re looking for an accountant in Caloundra to help you with your business’s finances, SMB Accounting is here to help. We offer various accounting services, such as individual tax returns, small business accounting, SMSF audits, trust account audits, special financial statements, and more. Learn more about how our accountants can help your business today!

 

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2021 – Tax Planning – Client Newsletter

General Year End Tax Planning Strategies

Business Income and Expenses

Subject to cash flow requirements, consider deferring income until after 30 June, especially if you expect lower income for 2021/22 compared to 2020/21.

Most businesses are taxed on income when it is invoiced. Some small businesses may only be taxed when income is received. Income from construction contracts is generally taxed when progress payments are invoiced or received.

Ensure that you have complied with the requirements to claim deductions in 2020/21:

  • Bad debts must be written off in your accounts before 30 June.
  • Employer or self-employed superannuation contributions must be paid to, and received by, the super fund before 30 June and must be within the contributions cap ($25,000 for all individuals regardless of age).
  • Depreciation can be claimed for assets first used, or installed ready for use, before 30 June.
  • Small businesses (turnover less than $10m), can claim expenses prepaid up to 12 months in advance – for larger businesses, this is generally limited to expenses below $1,000.
  • Wages paid to your spouse or family members must be reasonable for the work performed.

“The Temporary Full Expensing of Assets allows immediate deductions of assets purchased after 6 October 20 and before 30 June 22 for eligible businesses with turnover up to $5 billion.”

Small businesses planning major purchases or replacement of capital equipment should contact us for advice. Careful timing of those transactions can result in substantial tax savings.

Scrap any obsolete item in the asset register before 30 June. Consider delaying the sale of assets that will realise a profit on sale and bring forward any sales that will result in a loss.

Review valuations of trading stock in the lead up to 30 June. The best practice is generally to value stock at the lower of cost or market selling value.

These best practices should be revised if you expect a tax loss for 2020/21 or substantially higher income in 2021/22 compared to 2020/21.

 

Personal Income, Deductions and Tax Offsets

Subject to cash flow requirements, set term deposits to mature after 1 July, rather than before 30 June.

Consider realising capital losses if you have already realised capital gains on other assets during 2020/21. Conversely, consider realising capital gains if you have unrecouped capital losses, or you expect substantially higher income in 2021/22 compared to 2020/21.

If you expect lower income in 2021/22 due to retirement or any other reason, consider deferring income until after 1 July, when you will be in a lower tax bracket. If you are a primary producer and you expect a permanent reduction in income, consider withdrawing from the income averaging system.

Arrange for deductible donations to be grouped in the higher income year, if you expect a substantially higher or lower income in 2021/22 compared to 2020/21. Make all donations in the name of the higher income earner.

Other Tax Planning Considerations

Contact us for advice if you have moved to or from Australia for an extended period. You may need to review your residency status for tax purposes. There are important tax consequences if you change tax residency.

Trustees of trusts should ensure that all necessary documentation is completed before 30 June, especially where you intend to stream capital gains or franked distributions to specific beneficiaries or have beneficiaries who aren’t the default beneficiaries.

Family discretionary trusts may need to make a family trust election if the trust has unrecouped losses or has beneficiaries whose total franking credits for the year may exceed $5,000.

Be sceptical of year-end tax shelter schemes. You should not enter a scheme without advice regarding both its tax consequences and commercial viability.

Single Touch Payroll

The Single Touch Payroll reporting framework is expanding from 1 July 2021 to include closely held payees. A closely held payee is one who is directly related to the entity from which they receive payments, for example:

  1. Family members of a family business;
  2. Directors or shareholders of a company;
  3. Beneficiaries of a trust.

 

Income Tax Changes – Small Businesses

Tax Rate

For the 2020/21 year, the reduced corporate tax rate has been reduced to 26%, down from 27.5%, eligibility for the reduced corporate tax rate remains unchanged and applies to base rate entity companies with an aggregated turnover of less than $50m.

The lower company tax rate for base rate entities will reduce to 26% in 2020–21 and to 25% for the 2021–22 income year.

Small Business Income Tax Offset

The small business income tax offset has been increased to 13%, up from 8%. The tax offset is a 13% discount of the income tax payable on the business income received from a small business entity (other than a company) with an aggregated turnover of less than $5m, up to a maximum of $1,000 a year.

Expanded access to small business concessions

From 1 July 2020, businesses that are not small businesses because their turnover is $10 million or more but less than $50 million can also access an immediate deduction for certain start-up expenses and for prepaid expenditure.

From 1 July 2021, businesses that are not small businesses because their turnover is $10 million or more but less than $50 million can also access these small business concessions:

  1. Simplified trading stock rules; and
  2. PAYG instalments concession; and
  3. A two-year amendment period; and
  4. Excise concession.

 

Temporary Full Expensing of Assets

From 7.30 pm AEDT on 6 October 2020 until 30 June 2022 the temporary full expensing allows:

§  Eligible business entities with an aggregated turnover less than $5 billion or corporate tax entities that satisfy the alternative test can immediately expense the cost of eligible new depreciating assets.

§  Eligible businesses with an aggregated turnover under $50 million can immediately expense the business portion of the cost of eligible second-hand assets for

§  Businesses with an aggregated turnover under $10 million can immediately expense the balance of a small business pool at the end of each income year in the period.

Accelerated Depreciation Turnover less than $500m

An immediate deduction is available for entities with an aggregated turnover of less than $500m for assets first used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020, cost less than $150,000 up from $30,000

The balance of the general small business pool is also immediately deducted if the balance is less than $150,000 on 30 June.

The threshold reverts to $1,000 from 1 July 2021.

Income Tax Changes – Individuals

Tax Rate

The key income tax bracket changes for the 2020/21 year, as a result of the federal budget, are:

  • the 19% rate ceiling lifted from $37,000 to $45,000; and
  • the 32.5% tax bracket ceiling lifted from $90,000 to $120,000.

Low Income Tax Offset

Australian tax resident individuals whose income does not exceed $66,667 are entitled to the low income tax offset. The maximum low income tax offset is $700 for the 2020–21 and later income years. This has been increased from $445 as a result of the 2020–21 federal budget.

Low and Middle Income Tax Offset

Australian resident individuals whose income does not exceed $126,00 are entitled to the low and middle income tax offset.  The low and middle income tax offset amount is between $255 and $1,080.

Limiting Deductions for Vacant Land

New legislation limiting deductions for the costs incurred in holding vacant land applies to costs incurred on or after 1 July 2019, even if the land was held before that date.

Amounts you do and do not need to include in your tax return

There have been a range of new assistance and support payments made available to individuals in response to the natural disasters and other circumstances that have impacted us during the 2019-20 & 2020-21 financial year. There are specific requirements around reporting Disaster Recovery Payments (DRP), payments in relation to 2019-20 bushfires and some COVID-19 grants, please contact us for advice regarding these payments.

General speaking, emergency assistance in the form of gifts from family and friends is not taxable.
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2021/22 Federal Budget

Personal income tax changes

Retaining the Low and Middle Income Tax Offset (‘LMITO’) for the 2022 income year

The Government has announced that it will retain the LMITO for one more income year, so that it will still be available for the 2022 income year.

Under current legislation, the LMITO was due to be removed from 1 July 2021.The LMITO is a non-refundable tax offset that provides tax relief for low and middle income taxpayers and is available in addition to the Low Income Tax Offset (‘LITO’). The amount of the offset is $1080 and tax payers receive the full amount if their income is between $48,001 – $90,000

Below this threshold and above the threshold the amount is phased in or out. You will not receive any if your income is > $126,001

Personal Tax rates remain unchanged for 2021-22, Stage 3 tax rates start from 2024-25 unchanged

In the Budget, the Government did not announce any personal tax rate changes, having already brought forward the stage 2 tax rates to 1 July 2020 in the October budget. The stage 3 tax changes commence from 1 July 2024, as previously legislated.

 Reducing compliance costs for individuals claiming self-education expense deductions

The Government will remove the exclusion of the first $250 of deductions for prescribed courses of education. Currently, the first $250 of a prescribed course of education expense is not tax deductible. Removing this $250 exclusion is expected to reduce compliance costs for individuals claiming self-education expense deductions.

Changes affecting business taxpayers

 Temporary full expensing extension

In the prior year (2020/21) Federal Budget, the Government announced amendments to allow businesses with an aggregated turnover of less than$5 billion to access a new temporary full expensing of eligible depreciating assets until 30 June 2022.

In the 2021/22 Federal Budget, the Government has announced that temporary full expensing will be extended by 12 months to allow eligible businesses to deduct the full cost of eligible depreciable assets of any value, acquired and first used or installed ready for use by 30 June 2023. All other elements of temporary full expensing will remain unchanged, including the alternative eligibility test based on total income, which will continue to be available to businesses.

Temporary loss carry-back extension

In the prior year (2020/21) Federal Budget, the Government announced amendments to introduce a temporary loss carry-back measure. In the 2021/22 Federal Budget, the Government has announced that the loss carry-back measure will be extended to allow eligible companies to also carry back (utilise) tax losses from the 2023 income year to offset previously taxed profits as far back as the 2019 income year when they lodge their tax return for the 2023 income year.

Debt recovery for small business

The Government has announced that it will allow small business entities (including individuals carrying on a business) with an aggregated turnover of less than $10 million per year to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal (the ‘Tribunal’) to pause or modify ATO debt recovery actions, such as garnishee notices and the recovery of general interest charge or related penalties, where the debt is being disputed in the Tribunal.

Currently, small businesses are only able to pause or modify ATO debt recovery actions through the court system, which can be costly and time consuming. It is expected that applying to the Tribunal instead of the courts will save small businesses at least several thousands of dollars in court and legal fees and as much as 60 days of waiting for a decision

Superannuation related changes

Removing the work test for voluntary contributions

The Government has announced that it will allow individuals aged 67 to 74 years (inclusive) to make or receive non-concessional contributions (including under the bring-forward rule) and salary sacrifice contributions without meeting the work test, subject to existing contribution caps. Individuals aged 67 to 74 years (inclusive) will still have to meet the work test to make personal deductible contributions.

Removing the requirement to meet the work test when making non-concessional or salary sacrifice contributions will simplify the rules governing superannuation contributions and will increase flexibility for older Australians to save for their retirement through superannuation.

Reducing the age limit for downsizer contributions

The Government will reduce the age limit from which downsizer contributions can be made by eligible individuals, from65 to 60 years of age.

The downsizer contribution allows eligible individuals to make a one-off, after-tax contribution to their superannuation fund, of up to $300,000 per person, following the disposal of an eligible dwelling, where certain conditions are satisfied. Under the current requirements, an individual must be at least 65 years of age at the time of making the relevant contribution, for the contribution to qualify as a downsizer contribution.

Removing the $450 per month threshold for Superannuation Guarantee eligibility

The Government will remove the current $450 per month minimum income threshold, under which employees do not have to be paid SG contributions by their employer.

Changes to the First Home Super Saver (‘FHSS’) scheme

The Government has announced that it will make the following changes to the FHSS scheme.

  • Increasing the maximum releasable amount to $50,000

The Government will increase the maximum releasable amount of voluntary concessional and non-concessional contributions under the FHSS scheme from $30,000 to $50,000, to assist first home buyers in raising a deposit more quickly. Voluntary contributions made from 1 July 2017 up to the existing limit of $15,000 per year will count towards the total amount able to be released.

  • Changes to improve the operation of the FHSS scheme

The Government will make technical changes to the legislation underpinning the FHSS scheme to improve its operation as well as the experience of first home buyers using the scheme. These four changes will apply retrospectively from 1 July 2018, and will assist FHSS scheme applicants who make errors on their FHSS scheme release applications

Conclusion

This is a summary of the main areas which may affect you as an individual or as a business. However if you have any other questions regarding the budget send an email to stephen@smbaccounting.com.au

 

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5 Ways to Cut Costs in Your Business Operations – Our Guide

Managing your cash flow is a crucial part of running your business, but it’s an aspect that tends to overwhelm entrepreneurs. As a business owner, you’re laser-focused on bringing in more profit and scaling your company, but doing so during uncertain economic conditions means that you need to account for every cent you make. Any increase or reduction in your costs can affect how much profit you make, further highlighting the importance of cash flow management. 

However, tracking your expenses and working with accounting firms in the Sunshine Coast will help you boost profits and find other opportunities to cut down on business costs. Here are five possible ways you can save more money by economising your operations:

  • Switch to Technology 

Automating tasks has never been easier than it is today, as there are many tools and software you can use to improve your workflow. You can take advantage of project management software, for example, which will automate tasks necessary for running your business, saving you valuable time.

You can also invest in accounting tools to keep a close eye on your cash flow and financial reporting, as small business accounting is crucial to your business’s success. It will also help you keep track of your expenses, ensuring you’re well aware of every business transaction you make.

  • Consider Operating Your Business From Home

2020 has demonstrated how the work-from-home setup has been beneficial for many businesses all over the world, so it’s something you may want to consider for your own enterprise as well. Doing so will help you cut back on your office space expenses, business taxes, utilities, and even insurance. 

However, some companies still require an office to work more efficiently. If operating your business from your home isn’t feasible, consider moving to a smaller or less expensive space instead. You’ll enjoy much bigger savings that way.

  • Reduce Energy Usage

Energy, although necessary, tends to eat up a portion of a business’s income. Fortunately, you can optimise your energy usage by switching to energy-efficient appliances such as light bulbs and your heating or air conditioning system. You can also ask your local energy provider to perform an audit, as they can recommend ways to cut down on your energy usage. You can even invest in a solar panel system, which will reduce your impact on the environment while reducing your energy bills. 

  • Invest in Your Employees

While investing in your employees may seem like a way to spend more money instead of cutting back on your expenses, it can actually save you a lot of money in the long run. By assessing the skills and experience of your employees and analysing their potential, you can train them to refine new, useful skills that will be beneficial to your business. In the process, you won’t have to hire more people to take on roles that your employees have shown proficiency in, thereby reducing turnover. It’s important, however, to make sure that your employees don’t feel overwhelmed or burned out with the tasks you give them. 

  • Reduce Your Debts 

Asking your accountant to run a financial audit on your business will help you find ways to save more money and take care of your debts, which will save you hundreds of dollars in interest. They can create a plan that will help you pay off your debt early or on time, improving your credit score and avoiding a deficit. It will also help you make more informed financial decisions, which is crucial to your business’s success.

Conclusion

Running a business is exciting and rewarding, but it involves a lot of analysing and tracking to make sure you’re well aware of everything going in and out of your company. If you’re not careful, you may be spending more than you’re earning, which can quickly land you in hot water. With these five tips, you’ll enjoy much more savings and reduced business expenses, helping you achieve your earning goals. 

SMB Accounting is an accounting firm in the Sunshine Coast offering individual tax returns, small business accounting, financial reporting, and other services. We complete many types of audits, such as investigative reviews, self-managed super fund audits, trust account audits, and more. Contact us today to find out how we can help you!

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3 Benefits an SMSF Can Provide for Your Small Business

One way that small business owners can strengthen and supplement their income is through self-managed super funds (SMSF). Though it might seem challenging, these obstacles are worth traversing, as SMSFs offer many benefits. Having an SMSF allows you to invest in commercial properties within your private super funds. This gives you the twofold benefit of increasing the value of your super fund and providing your organisation with valuable assets. 

What is an SMSF?

An SMSF is a superannuation trust structure that provides benefits to its members upon retirement. Its main difference from other super funds is that SMSF members are also the trustees of the fund, and they can amount to a maximum of four members. This allows a level of control when it comes to tailoring the funds to each trustee’s needs. 

SMSFs come with their our Tax File Number (TFN), Australian Business Number (ABN), and transactional bank account. This bank account will allow trustees to receive contributions and rollovers, make investments, and pay out lump sums and pensions. As mentioned before, the fund is controlled by trustees, which can take two forms:

  • The Corporate Trustee. A company can act as the trustee with each member as a director. This can allow simpler registration of assets, more efficient management, and flexibility in membership. 
  • The Individual Trustee. In this case, each member is appointed as a trustee with a  minimum of two trustees required. 

While setting up an SMSF requires compliance with the trustees of the fund, there are quite a few major advantages it can offer. Here are some of these advantages:

1. It can reduce the capital gains tax

A small business owner can transfer their commercial properties into the fund. The superannuation law might prevent individuals from transferring their residential properties to a fund, commercial properties are exempt. Business offices, buildings, and industrial locations can be held in your SMSF.

Including commercial properties in your SMSF reduces the capital gains tax amount on the sale of these properties, boosting the super fund as well. Consult your accountant about which funds you can and cannot write off in this manner.

2. It can give provide tax deductions for business expenses

Once a property has been transferred to the SMSF, you will have to enter a lease agreement with the fund to rent the property on commercial terms. This can be written off as a tax deduction for the business, as any rent paid toward using the property would now be a business expense. 

Repairs, maintenance, renovations, improvements, and other property management fees are also now claimed in the fund.

3. The fund earns money for tax deductions

Any earnings on investments held in an SMSF are taxed at 15%—including commercial properties. That means rent will be taxed at the standard rate. We’ve mentioned before that small business owners like you can claim a tax deduction for the business on rent paid to the SMSF, but the SMSF itself will only end up paying this reduced tax. This serves the purpose of allowing businesses to make significant tax deductions while making significant contributions to its retirement fund. 

Final thoughts

Not all businesses and business structures can fit with every business. For the right enterprises, however, it can help manage the commercial properties of a business while growing out its retirement fund. An SMSF can offer options and benefits you otherwise would not have had. 

If you are looking to set up an SMSF for your business along the Sunshine Coast, QLD, you will need the help of an accountant. Send us at SMB Accounting a message so we can help you through this process. 

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What You Need to Know About Hiring an SMSF Auditor

A self-managed super fund (SMSF) trustee is obliged to designate an SMSF auditor approved by the Australian Taxation Office (ATO) on or before forty days before filing their SMSF annual return. In a nutshell, an SMSF auditor is a financial expert who works to evaluate if your company’s finances comply with the superannuation law.

Besides that, they also monitor your fund’s financial statements. If you’re thinking of hiring an SMSF auditor, then you must get someone that requires only minimal supervision so that you can focus on reaping the benefits of your trust while they handle your financial records. Aside from that, a major rule about hiring SMSF auditors is that they aren’t allowed by law to audit a fund that they have a financial interest in, nor have an intimate or professional relationship with the SMSF members or trustees involved.

Keep reading below to find out more about hiring an SMSF auditor.

The Importance of Having an SMSF Auditor 

Before you seek the assistance of an SMSF auditor, the person you select must be registered with the Australian Securities & Investments Commission. They should also have an SMSF auditor number which you will have to provide each time you submit your company’s annual return.

An SMSF auditor is knowledgeable at advising those in need regarding current assets in your SMSF and if your fund adheres to the rules and regulations listed down in the Superannuation Industry (Supervision) Act of 1993. Before they establish an audit of your fund, an SMSF auditor will create a Terms of Engagement Letter and submit it to the trustee of the fund.

What is a Terms of Engagement Letter?

The letter involves the duties and obligations of all parties linked to the audit, including the range of the audit. As a result, your existing accountant serves as an SMSF auditor’s primary contact person and will be provided with a separate Terms of Engagement Letter.

With the letter stating each party’s capabilities, it will serve as protection for you, your accountant, and the auditor to prevent any miscommunication from occurring. The Terms of Engagement Letter also stands to secure audit evidence prepared by your auditor in case of unwanted tampering and mishandling. 

SMSF auditors who don’t follow legal standards can be sued and face charges given by the Court. Besides that, the letter can also be considered a contract so that both parties remain accountable in the event of compliance breaches, such as reaching out to other auditors for second opinions. As a result, trustees may be audited by the ATO once they violate the policies stated in the Terms of Engagement Letter.

When is an SMSF Auditor Held Liable?

An SMSF auditor is usually tasked to give an honest and reliable opinion regarding your assets, proving that your fund exists and is being assessed as part of the requirement by the SIS Act. If you also require the guidance of an accounting firm, they will work hand-in-hand so that the auditor can confirm that your superannuation funds are appropriately handled and comply with all given conditions.

In the event that the SMSF auditor you hire does not stick to the given standards and, instead, prefers to take the situation into their own hands, they end up putting themselves at risk to potential lawsuits. Aside from that, they are also causing trouble with your company and your small business accounting service.

Conclusion

If you’re worried about relying on an SMSF auditor, it’s important to remember that they are tied by the law to accomplish their auditing responsibilities as professionally and lawfully as expected. A Terms of Engagement Letter exists to impose the rules and regulations for all parties present. So the secret to having an SMSF auditor is to take a closer look at how the audit is done and that everyone involved should make an effort to achieve their duties accordingly!

Are you looking for auditing and accounting services in Australia to handle your SMSF trust? SMB Accounting offers individual tax returns, small business accounting, SMSF audits, and Xero accounting software to our clients in need. Get in touch with us today to book an appointment!

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3 Smart Tips for Reducing Your Tax Liability

 

Truth be told, paying taxes is not fun. It entails the stressful preparations you need to do to take into account all of your income. On top of that, it involves seeing a significant percentage of your earnings slip out of your hand. Nevertheless, paying taxes diligently and promptly is something that must be done.

The bright side is that there are actually smart strategies you can employ to legally reduce your tax liability. With these methods, you can lower your tax bracket and, consequently, shrink the portion of your income that can be taxed.

In the sections below, we will give you a run-through of three of the many ways you can minimise your tax:

 

  1. Use Discretionary Trusts for Your Investments

Discretionary trusts provide you with a flexible way to indirectly gift your assets, property and money to your beneficiaries. In this legal arrangement, you are giving your identified trustee ‘full discretion’ on when and what funds to give to your recipients.

One advantage of this is that it allows you to freely distribute your income and assets to other people. On that note, you can divide up your income among your beneficiaries in a way that lowers your tax bracket and reduces the overall tax you need to pay.

Take note, however, that the trustees are liable to tax on the income that they haven’t distributed yet.

 

  1. Sacrifice Some of Your Salary Into Your Super

Superannuation, or ‘super’, is one way you can save money for your retirement. In this arrangement, your employer is obliged by law to pay 9.5% of your salary into your super fund. This is essential because it helps you secure your financial stability when the time comes for you to retire from work.

On that note, you should know that you can ask your employer to pay some more of your salary into your super on top of the minimum percentage required. This enables you to not only reduce your taxable income but also build your super fund faster.

You should keep in mind, however, that you cannot withdraw this money easily. You can only take it out in certain circumstances, such as when you retire or turn 65 years old.

 

  1. Claim Deductions for Your Work-Related Car Expenses

This is a smart hack, especially if you use your own vehicle for business purposes.

There are basically two ways for you to claim deductions for your work-related expenses. You can either use the ‘cents per km’ method or claim the actual expenses through the logbook method.

In the former method, for the 20/21 year you can claim a flat 72 c/km for travels you’ve proved as business-related. However, there is a cap of 5,000 km; this gives you a maximum deduction of $3,600.

The latter method, on the other hand, lets you claim business-use percentage on itemised allowable expenses. This could be your petrol, oil, insurance, repairs, maintenance, registration and so on. Take note, however, that you must maintain a logbook of your actual expenses for 12 weeks to document and prove these expenses.

 

Conclusion

Computing your taxes and filing them are honestly not enjoyable activities, especially if you are about to let go of a large chunk of your income. Nevertheless, you should know that there are various legal ways for you to minimise your taxes. The three tips mentioned above are just some of the many methods you can employ to do this.

For the best results, however, it’s still best to work with taxation experts. They can help you identify more opportunities to reduce your tax liability and complete your tax returns on time.

We are the authority when it comes to taxation in Australia. We look at innovative ways to complete your income tax returns on time and with minimum stress. If this sounds a lot like something you need, don’t hesitate to get in touch with us today!

 stephen@smbaccounting.com.au

 P 1300 854 159

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Tax Time is NOW!

TAX TIME IS NOW!

 

June 30 is fast approaching , so you should start thinking about any work-related and/or income-generating expenses you paid since last July 1, but also if you are planning on some expenditure n the near future to bring it forward before June 30

To recognise expenses that may be suitable as tax deductions, you should consider:

  • Was the expense related to your work or income-generating activity?
  • You have spent the money, and your employer didn’t reimburse you
  • You have an official record of the expense – e.g. receipt or bank statement?

Note: If the cost was for work and personal use (e.g. home internet) combined, you need to decide the percentage of the expense related to your work or income-generating activity.

To assist, we have recognised 8 tax deductions you may be able to claim on your tax return:

  1. Dry-cleaning, clothing and laundry expenses

You may be able to claim these costs, if you purchased clothing specific for your employment/business, protective clothing or work uniforms directly related to your job. There is also a claim for related cleaning costs, as work-related expenses.

Though, you’re unlikely to be able to claim costs for conventional clothing or non-compulsory work uniforms.

To claim these costs as tax deductions, you need to have written evidence of these costs, such as diary entries and receipts.

  1. Home office expenses

With the crisis of the virus affecting us all most of us have had to result in working from home, there are several home office expenses you may be able to claim as tax deductions.

These include:

  • Phone and Internet expenses
  • Computer consumables (e.g. printer paper and ink) and stationery
  • Home office equipment (e.g. computers, phones, printers, furniture and furnishings) – you may be able to claim either:- The full cost of the items, if it’s less than $300; or
    – The decline in value (also known as depreciation) for items over $300.

Most people won’t be able to claim:

  • Home expenses, like mortgage interest, rent and rates
  • Costs of general household items, like coffee, tea and milk

Please review the criteria’s before you consider on claiming an amount for home office expenses in your tax return.

For example, you should consider whether you can claim the temporary ATO-approved ‘shortcut method’ (of 80 cents per hour for all additional running expenses) for the period 1 March 2020 until 30 June 2020.

You should consider which method is best for you and the criteria you need to meet to claim a deduction.

  1. Education

If your studies were work-related and you enrolled in an eligible course, you may be able to claim a tax deduction.

  1. Industry-related deductions

You may also claim tax deductions for work-related expenses specifically related to your occupation and industry.

You can check the list of occupations and industries on the ATO website to see what industry-related tax deductions you can claim.

  1. Vehicle and travel expenses

While you generally can’t claim expenses for getting to and from your regular workplace, there are some work-related vehicle and travel expenses you may be able to claim.

These include:

  • Where your work requires you to attend multiple workplaces or locations
  • Car expenses where you need your car to perform your work duties
  • Accommodation expenses when you’re required to travel for work

 

  1. Other work-related expenses

Other  work-related expenses you may be able to include as tax-deductible expenses, depending on your work and individual circumstances. Expenses to consider include:

  • Overtime meals
  • Books, periodicals and digital information subscriptions
  • Safety goggles and protective sunglasses
  • Union fees, subscriptions to associations and bargaining agents fees
  1. Gifts and donations

If you gave a gift or donation to an organisation (e.g. your favourite charity), you may be able to claim a tax deduction. However, there are specific rules that apply.

Generally, you can claim any donation you made above $2 if it was to a ‘deductible gift recipient’. For gifts, different rules apply depending on the type of gift.

  1. Investment income

You may be able to claim investment income tax deductions if you’ve received:

  • Interest payments on your savings
  • Dividends from your investments in shares
  • Rental payments from an investment property
  • Another type of investment income

If you’ve received any of these, you could be entitled to claim for costs related to this income, such as interest charged on money borrowed to buy stocks or rental properties.

You may also be able to claim money you paid for investment advice.

Things to note

  • It’s important to remember that tax laws are complex, and you should ensure that you’ve confirmed you can claim an expense before including it in your tax return. Contact SMB Accounting for further clarification.
  • The Australian income year ends on 30 June. You have from 1 July to 31 October to lodge your tax return for the previous income year. If you use a registered tax agent to prepare and lodge your tax return, you may be able to lodge later than 31 October.
  • The information provided is of a general nature and doesn’t take into account your personal financial or business situation – we suggest contacting us at SMB Accounting if you need clarification.

 

Please feel free to share to any person you may think may benefit 😊

If you need any assistance, please get in contact with us at

 stephen@smbaccounting.com.au

 P 1300 854 159

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TAX SAVING STRATEGIES

 

TAX SAVING STRATEGIES

 

Even with the final day of the financial year to go, traditionally, year-end tax planning for small businesses is based around two simple concepts (i.e., Accelerating business deductions and deferring income).  Consideration will obviously also need to be given to the impact of the  COVID-19 pandemic on specific businesses as in itself has had the effect of reducing incomes and therefore tax payable.

Small Business Entities (‘SBEs’)  (i.e., Businesses with an aggregated turnover of less than $10 million) often have greater access to year-end tax planning due to particular concessions that only apply to them.  Taxpayers that qualify as an SBE can generally pick and choose which of the concessions they wish to use each year (although see below regarding the simplified depreciation rules).  The following are a number of areas that may be considered for all business taxpayers.

Maximising deductions for non-SBE taxpayers

Non-SBE business taxpayers should endeavour to maximise deductions by adopting one or more of the following strategies:

  • Prepayment strategies;
  • Accelerating expenditure; and
  • Accrued expenditure.

Prepayment strategies – non-SBE

Any part of an expense prepayment relating to the period up to 30 June is generally deductible.

In addition, non-SBE taxpayers may generally claim the following prepayments in full:

  • expenditure under $1,000;
  • expenditure made under a ‘contract of service’ (e.g., salary and wages); or
  • expenditure required to be incurred under law.

Note:  Prepayments can be a little confusing, so before you commit to making a payment please feel free to email SMB Accounting with any queries or assistance if required.

Accelerating expenditure – non-SBE

This is where a business taxpayer brings forward expenditure on regular, on-going deductible items.  Business taxpayers are generally entitled to deductions on an ‘incurred basis’.  Therefore, there is generally no requirement for the expense to be paid by 30 June 2020 (i.e., as long as the expense has genuinely been ‘incurred’).

Checklist

The following may act as a checklist of possible accelerated expenditure:

  • Depreciating assets – Non-SBEs that have an  aggregated annual turnover of less than $50 million can claim an immediate deduction for eligible assets costing less than $30,000 for any assets acquired and first used (or installed ready for use) from 7:30pm (AEDT) 2 April 2019 to before 12 March 2020.
    From 7:30pm (AEDT) on 2 April 2019 and first used (or installed ready for use) from 12 March 2020 to 30 June 2020 this has been increased to $150,000.
    Depreciating assets costing $100 or less can be written off in the year of purchase and depreciating assets costing less than $1,000 can be allocated to a low value pool and depreciated at 18.75% (which is half of the full rate of 37.5%) in their first year, regardless of the date of purchase.
    Finally, a 50% accelerated depreciation concession may apply for new eligible assets that start to be held and used (or installed ready for use) from 12 March 2020 to 30 June 2021.
  • Repairs.
  • Consumables/spare parts.
  • Advertising.
  • Superannuation – contributions to a complying superannuation fund, to the extent contributions are actually made (i.e., they cannot be accrued but must be paid by 30 June).

Accrued expenditure

Non-SBE taxpayers (and many SBE taxpayers – refer below) are entitled to a deduction for expenses incurred as at 30 June 2020, even if they have not yet been paid.

The following expenses may be accrued:

  • Salary or wages and bonuses – the accrued expense for the days that employees have worked but have not been paid as at 30 June 2020.
  • Interest – any accrued interest outstanding on a business loan that has not been paid.
  • Commissions – where employees or other external parties are owed commission payments.
  • Directors’ fees – where a company is definitively committed to the payment of a director’s fee as at 30 June 2020, it can be claimed as a tax deduction.

Maximising deductions for SBE taxpayers

Deductions can be maximised for SBE business taxpayers by accelerating expenditure and  prepaying deductible business expenses.

Accelerating expenditure – SBE 

In addition to accelerating other expenditure items, SBE taxpayers can choose to write-off depreciating assets costing less than $30,000 (or potentially  $150,000) in the year of purchase.*

Assets costing more than the relevant immediate asset write-off threshold are allocated to an SBE general pool and depreciated at 15% (or potentially at 57.5% for eligible new assets subject to the 50% accelerated depreciation concession) in their first year.  Therefore, where appropriate, SBE business taxpayers should consider purchasing/installing these items by 30 June 2020.

(*) The immediate asset write-off threshold was originally increased to ‘less than $30,000’, for eligible assets first used or installed ready for use between 7:30pm (AEDT) 2 April 2019 and 30 June 2020. 

The threshold was subsequently increased to $150,000 for eligible assets first used or installed ready for use from 12 March 2020 to 30 June 2020 as a result of the Government’s response to the COVID-19 pandemic.

Prepayment strategies – SBE

SBE taxpayers making prepayments before 1 July 2020 can choose to claim a full deduction in the year of payment where they cover a period of no more than 12 months (ending before 1 July 2020).

Otherwise, the prepayment rules are the same as for non-SBE taxpayers.

The kinds of expenses that may be prepaid include:

  • Rent on business premises or equipment.
  • Lease payments on business items such as cars and office equipment.
  • Interest – check with your financier to determine if it’s possible to prepay up to 12 months interest in advance.
  • Business trips.
  • Training courses that run on or after 1 July 2020.
  • Business subscriptions.
  • Cleaning.

 

Information Required

This is some of the information we will need to help us prepare your income tax return:

  • Stock-take details as at 30 June 2020.
  • Debtors listing (including a list of bad debts written off) as at 30 June 2020.
  • Note: In order to claim a deduction, the debt must be written off on or before 30 June.
  • Creditors listing as at 30 June 2020.

 

Please feel free to share to any person you may think may benefit 😊

If you need any assistance, please get in contact with us at

 stephen@smbaccounting.com.au

 P 1300 854 159

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Jobkeeper Payment Alternate test – Update 4

JobKeeper Alternative Turnover Tests

The ATO has now determined alternative tests for various businesses in relation to the fall in turnover where there is not an appropriate relevant comparison period.

If your business satisfies the basic test, you do not need to go to any of the alternative tests as outlined.

The alternative tests can apply in the following circumstances:

1. the entity commenced business after the relevant comparison period (the business did not exist in that period)

2. the entity acquired or disposed of part of the business after the relevant comparison period (the business is not the same business in that period as it is now)

3. the entity undertook a restructure after the relevant comparison period (the business is not the same business in that period as it is now)

4. the entity’s turnover substantially increased by:

      • 50% or more in the 12 months immediately before the applicable turnover test period; or
      • 25% or more in the 6 months immediately before the applicable turnover test period, or
      • 12.5% or more in the 3 months immediately before the applicable turnover test period.

5. the entity was affected by drought or other declared natural disaster during the relevant comparison period

6. the entity has a large irregular variance in their turnover for the quarters ending in the 12 months before the applicable turnover test period, or

7. the entity is a sole trader or small partnership where sickness, injury or leave have impacted an individual’s ability to work which has affected turnover.

The Commissioner cannot determine an alternative decline in turnover test in all circumstances. It is only where there is an event or circumstance that is outside the usual business setting for entities of that class which results in the relevant comparison period in 2019 not being appropriate for measuring decline in turnover.

The Commissioner can also only determine a test for a class of entities and cannot make discretionary decisions for individual entities.

If you fall into more than one of the classes of entities covered by the alternative test, you can choose which alternative decline in turnover test to apply. You only need to satisfy one of the tests (it does not matter if you do not satisfy one of the other tests that applies to you).

We are providing calculation and enrollment into the JobKeeper system as a free complimentary service to our clients in order that those businesses survive these uncertain times.

DOWNLOAD ARTICLE – Jobkeeper Payment Alternate test – Update 4

 

Please feel free to share to any person you may think may benefit 😊

If you need any assistance, please get in contact with us at

 stephen@smbaccounting.com.au

 P 1300 854 159

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