Shares & What You Need To Know About Capital Gains

If you’re involved in shares, particularly on the selling side, you need to be aware of your tax obligations. Capital Gains Tax (CGT) is a crucial aspect of investing in shares and units in managed funds.

It applies to various transactions beyond merely selling your shares.

Let’s examine when CGT applies, the exceptions to its applicability, the records you need to keep, and the importance of identifying when shares were acquired.

When CGT Applies

The most common CGT event is the sale of shares or units. However, several other transactions can trigger CGT, including:

  • Redeeming Units in a Managed Fund: Switching units from one fund to another.
  • In Specie Transfers: Transferring assets in their current form rather than selling and then transferring cash.
  • Share Buybacks: Accepting an offer from a company to repurchase your shares.
  • Distributions from Unit Trusts: Receiving distributions that are not classified as dividends.
  • Non-Assessable Payments: Payments from a company that are not taxed as income.
  • Corporate Takeovers or Mergers: Holding shares in a company that undergoes a takeover or merges with another.
  • Liquidation or Administration: Owning shares in a company that enters liquidation or administration and the shares are declared worthless by the liquidator or administrator.

Whenever you sell shares or encounter another CGT event, it is necessary to calculate your CGT and report it in your income tax return.

When CGT Does Not Apply

Certain scenarios are exempt from CGT:

  • Dividends: These are taxed as ordinary income, not as capital gains.
  • Business of Share Trading: If you are engaged in a business of trading shares, profits from the sale are considered ordinary business income, not capital gains.

Records You Need to Keep

Maintaining accurate records is essential for calculating CGT. The necessary records, typically provided by your company, fund manager, or stockbroker, include:

  • Date of purchase
  • Purchase amount
  • Non-assessable payments
  • Date and amount of any calls (if shares were partly paid)
  • Sale price
  • Commissions paid to brokers
  • Details of events like share splits, consolidations, capital returns, takeovers, mergers, demergers, and bonus issues.

When buying multiple parcels of shares in the same company, keep detailed records for each parcel as they are considered separate CGT assets.

Identifying When Shares Were Acquired

When selling only some of your shares, it is crucial to identify which shares you are selling and their acquisition dates. This is important because shares bought at different times may have different costs, affecting your capital gain or loss.

For instance, transactions through the Australian Stock Exchange are recorded in the Clearing House Electronic Subregister System (CHESS). Using records from your CHESS holding statement or issuer-sponsored statement, you can select which shares you have sold and identify their costs.

Understanding when CGT applies, and the exceptions are fundamental for any investor. Proper record-keeping and identifying acquisition dates are vital for accurate CGT reporting. By following these guidelines, investors can navigate CGT complexities and manage their tax obligations effectively.

Keeping Up With The Instant Asset Write-Off

In a move aimed at bolstering small business cash flow and reducing compliance costs, the Government has announced an extension of the $20,000 instant asset write-off for another 12 months.

This extension, part of the 2024–25 Budget released on 14 May 2024, will see the measure continue until 30 June 2025.

This initiative allows small businesses with an aggregated turnover of less than $10 million to immediately deduct the full cost of eligible assets costing less than $20,000. To qualify, these assets must be first used or installed and ready for use between 1 July 2023 and 30 June 2025.

Eligibility

Eligibility to use instant asset write-off on an asset depends on:

  • your aggregated turnover (the total ordinary income of your business and that of any associated businesses)
  • the date you purchased the asset
  • when it was first used or installed ready for use
  • the cost of the asset being less than the threshold.

You are not eligible to use the instant asset write-off on an asset if your aggregated turnover is $500 million or more.

If temporary full expensing applies to the asset, you do not apply the instant asset write-off.

How Does It Work?

The $20,000 threshold applies on a per-asset basis, providing substantial flexibility for small businesses to acquire and immediately write off multiple assets. This can be particularly beneficial for businesses looking to upgrade equipment, invest in new technology, or make other capital improvements without the burden of prolonged depreciation.

The immediate deduction is unavailable for assets valued at $20,000 or more. However, these higher-cost assets can still be placed into the small business simplified depreciation pool. This method allows businesses to depreciate the asset at a rate of 15% in the first income year and 30% each year thereafter, providing a structured yet advantageous depreciation timeline.

The continuation of this measure is designed to aid small businesses by improving their cash flow and reducing the administrative burden associated with asset depreciation.

By allowing immediate deductions on lower-cost assets, the government aims to incentivise investment and growth within the small business sector. However, this will be dependent on the individual circumstances of businesses as to whether or not they may benefit from this measure.

What About The Legislation Of This Measure? 

It’s important to note that while these measures have been announced, they are not yet law. The Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, which includes provisions for the $20,000 instant asset write-off for the 2023–24 income year, is still before Parliament.

Once passed, this legislation will formalise the extension and ensure small businesses can continue to benefit from these deductions through to the new deadline of 30 June 2025.

The $20,000 instant asset write-off extension could be a significant boost for small businesses, providing immediate financial relief and encouraging ongoing investment in business growth and development.

Small business owners should monitor the legislative process to ensure they can take full advantage of these provisions once they become law.

Speak With Us

If you have any questions about this measure or if it would be suited for your business, why not speak with one of our trusted team for answers? We are here to assist you with any questions or enquiries you may have in the lead-up to the end of the financial year.

Tax Planning Vs Tax Schemes: Where’s The Line?

As your trusted accountant, we’re here to help you navigate the complex landscape of tax planning and ensure that you make informed decisions about your financial future.

Tax planning is a legitimate practice that allows you to arrange your affairs to minimise your tax obligations. Still, it’s essential to be aware of the distinction between legitimate tax planning and unlawful tax schemes.

Understanding Tax Schemes

Tax schemes exploit loopholes or manipulate the tax and superannuation systems in ways that are outside the spirit of the law. While tax planning within the confines of the law is perfectly acceptable, engaging in unlawful tax schemes can have serious consequences, including the risk of losing your original investment, having to pay back taxes with interest and penalties, and facing legal action from tax authorities.

Identifying Warning Signs

It’s essential to be vigilant for warning signs that may indicate the presence of an unlawful tax scheme. These signs can include promises of unrealistic benefits, the arrangement’s secrecy, fees or commissions based on tax savings, and discouragement from seeking independent advice.

The scheme’s structure may also raise red flags, such as deferring income, hiding income offshore, inflating deductions, or creating artificial entitlements to tax offsets or credits.

Staying Informed and Seeking Advice

One of the best ways to protect yourself from an unlawful tax scheme is to stay informed and seek independent advice from qualified professionals. Before entering into any tax planning arrangement, it’s essential to do your due diligence, check for warning signs, and seek advice from professionals who have no connection to the scheme or its promoters.

Additionally, you can check for taxpayer alerts, verify the credentials of your tax agent, and review product disclosure statements to ensure that you’re making informed decisions about your financial affairs.

How We Can Help

As your accountant, we aim to help you achieve your financial goals while ensuring compliance with tax laws and regulations.

If you encounter an arrangement that appears suspicious or have concerns about the legitimacy of a tax planning strategy, don’t hesitate to contact us for guidance.

Together, we can review the arrangement, assess its potential risks and benefits, and determine the best course of action to protect your interests and ensure compliance with tax laws.

Tax planning is an essential aspect of financial management, but it’s crucial to approach it with caution and diligence.

By staying informed, being aware of warning signs, seeking independent advice, and consulting with trusted professionals like us, you can confidently navigate the complexities of tax planning and ensure that you’re making sound decisions for your financial future.

A Deceased Estate’s Tax Affairs: What You Need To Know

Finalising the tax affairs of a deceased estate is a crucial step in the estate administration process, ensuring compliance with tax obligations and providing closure for beneficiaries. To streamline this process and avoid potential liabilities, it’s essential to follow a comprehensive checklist.

  1. Lodging and Finalising Tax Returns

The first step in finalising the estate’s tax affairs is to lodge the date of death tax return for the deceased person and any outstanding tax returns for previous years. This includes submitting any other returns or information the deceased person requires, such as business activity statements. Ensure all returns are lodged accurately and promptly to avoid penalties or delays.

  1. Ceasing Taxable Activities

Once all necessary tax returns have been lodged, ensure that the deceased estate is no longer earning taxable income. This may involve finalising the deceased estate’s last trust tax return, if applicable, and ceasing any business tax registrations held by the estate, such as the Australian business number (ABN), GST, and pay-as-you-go (PAYG) withholding registrations.

  1. Settling Tax Liabilities

Separate the tax liabilities of the deceased person from those of the deceased estate trust, accounting for them separately while recognising that they are all liabilities of the same general deceased estate. Offset any refunds against liabilities to determine the net tax position of the estate. Ensure that all tax liabilities are paid or fully provided for before making final distributions to beneficiaries or a testamentary trust.

  1. Handling Insolvency

If the estate is insolvent and unable to cover its liabilities, familiarise yourself with the succession laws of the relevant State or Territory governing the administration of insolvent estates. Seek professional guidance if needed, and notify the Australian Taxation Office (ATO) of the estate’s financial position to assess the action required regarding tax liabilities.

  1. Seeking Certainty

Consider whether the estate meets the conditions outlined in Practical Compliance Guideline PCG 2018/4, which allows an authorised Legal Personal Representative (LPR) to finalise the estate without incurring personal liability for the deceased person’s tax. These conditions include obtaining probate or letters of administration, meeting specific asset and income criteria, and fulfilling all tax obligations of the deceased person.

Finalising the tax affairs of a deceased estate is a critical aspect of estate administration, ensuring compliance with tax laws and providing certainty for beneficiaries.

By following a comprehensive checklist and addressing each step diligently, Executors and LPRs can navigate the complexities of estate taxation, minimise risks, and achieve closure for all parties involved.

Where necessary, seeking professional advice and guidance can further facilitate the process and ensure compliance with legal requirements. Don’t be afraid to ask for help – a registered tax agent like us can assist you.

Navigating Eligibility: Medicare Levy Exemptions

The Medicare levy, an additional payment atop your taxable income tax, serves to support Australia’s public health system, Medicare.

Ordinarily, your employer includes this levy, typically set at 2% of your taxable income, in the pay-as-you-go amount withheld from your salary or wages.

But what about the additional Medicare levy surcharge (MLS)?

You’ll encounter the MLS if, along with your spouse and dependent children, you lack adequate private patient hospital cover and earn above a certain income threshold. The MLS adds to the Medicare levy.

To preempt future MLS payments, securing the appropriate level of private patient hospital cover for yourself, your spouse, and your dependents is advisable.

Medicare Levy Thresholds For Individuals

For the 2022–23 financial year, you did not have to pay the Medicare levy if your taxable income is equal to or less than the lower threshold. This should also be the case for the 2023-24 income year.

Your Medicare levy as an individual will be reduced if your taxable income is above the lower threshold and at or below the upper threshold. The ATO works out the reduction for you when you lodge your tax return.

If you were entitled to the SAPTO (seniors and pensioners tax offset), the taxable income’s lower threshold is $38,365, and the upper threshold is $47,956. Your Medicare levy would be reduced if it was between those two amounts (and you meet other possible criteria).

Other taxpayers may be eligible for a reduction if their taxable income is above the lower threshold ($24,276) and below the upper threshold ($30,345). You may still be eligible for a medicare levy reduction if you do not qualify for a medicare levy exemption.

Medicare Levy Reductions Based On Family Taxable Income

Family taxable income is either:

  • the combined taxable income of you and your spouse (including a spouse who died during the year)
  • your taxable income if you were a sole parent.

You might qualify for a Medicare levy reduction based on your family’s taxable income if you satisfy the following criteria:

  • Your individual taxable income exceeded $30,345 ($47,956 for seniors and pensioners entitled to SAPTO) in the 2022–23 fiscal year.
  • You meet one of the following conditions:
    • You are married or in a de facto relationship.
    • Your spouse passed away during the year, and you remained without another spouse by the year’s end.
    • You are entitled to an invalid and invalid carer tax offset for your child.
    • You are the sole caregiver of one or more dependent children.

If you have a spouse, it’s important to note that you may not receive SAPTO, even if you meet all eligibility requirements. This occurs because the tax offset amount is calculated based on your individual rebate income, not the combined rebate income of you and your spouse. Additionally, even if you qualify for SAPTO but do not receive the offset, it does not automatically entitle you to a Medicare levy reduction.

Unsure about the Medicare levy, or your own eligibility for reductions or exemptions? Start a discussion with us. We’re here to assist.

8 Types Of Benefits That FBT Applies To

For businesses in Australia, providing fringe benefits to employees can be a valuable way to attract and retain talent, as well as incentivise performance.

However, employers need to understand their obligations regarding Fringe Benefits Tax (FBT). The Australian Taxation Office (ATO) administers FBT, a tax on certain non-cash benefits provided to employees in connection with their employment.

Let’s explore the types of fringe benefits subject to FBT to help businesses navigate this complex area of taxation.

  1. Car Fringe Benefits

One common type of fringe benefit is the provision of a car for the private use of employees. This includes company cars, cars leased by the employer, or even reimbursing employees for the costs of using their own cars for work-related travel.

  1. Housing Fringe Benefits

Employers may provide housing or accommodation to employees as part of their employment package. This can include providing rent-free or discounted accommodation, paying for utilities or maintenance, or providing housing allowances.

  1. Expense Payment Fringe Benefits

Expense payment fringe benefits arise when an employer reimburses or pays for expenses incurred by an employee, such as entertainment expenses, travel expenses, or professional association fees.

  1. Loan Fringe Benefits

If an employer provides loans to employees at low or no interest rates, the difference between the interest rate charged and the official rate set by the ATO may be considered a fringe benefit and subject to FBT.

  1. Property Fringe Benefits

Providing employees with property, such as goods or assets, can also result in fringe benefits. This can include items such as computers, phones, or other equipment provided for personal use.

  1. Living Away From Home Allowance (LAFHA)

When employers provide allowances to employees who need to live away from their usual residence for work purposes, such as for temporary work assignments or relocations, these allowances may be subject to FBT.

  1. Entertainment Fringe Benefits

Entertainment fringe benefits arise when employers provide entertainment or recreation to employees or their associates. This can include meals, tickets to events, holidays, or other leisure activities.

  1. Residual Fringe Benefits

Residual fringe benefits encompass any employee benefits that do not fall into one of the categories outlined above. This can include many miscellaneous benefits, such as gym memberships, childcare assistance, or gift vouchers.

Compliance With FBT Obligations

Employers must understand their FBT obligations and ensure compliance with relevant legislation and regulations. This includes accurately identifying and valuing fringe benefits, keeping detailed records, lodging FBT returns on time, and paying any FBT liability by the due date.

Fringe Benefits Tax (FBT) is an essential consideration for businesses that provide non-cash benefits to employees.

By understanding the types of fringe benefits subject to FBT, employers can ensure compliance with tax obligations and avoid potential penalties or liabilities.

Seeking professional advice from tax experts or consultants can also help businesses navigate the complexities of FBT and develop strategies to minimise tax exposure while maximising the value of employee benefits. Why not start a conversation with one of our trusted tax advisers today?

An Employer’s Introduction To FBT

Fringe Benefits Tax (FBT) is a tax levied on particular benefits employers provide to their employees or their families.

It is separate from income tax and is calculated based on the taxable value of the fringe benefit provided.

As an employer, it is crucial to understand your FBT obligations to ensure compliance with tax laws and regulations.

Who Pays FBT?

The responsibility for paying FBT lies with the employer, regardless of whether the benefit is provided directly by the employer or through a third party under an arrangement with the employer.

Calculating FBT

To determine the amount of FBT payable, employers must ‘gross up’ the taxable value of the benefits provided.

This involves calculating the gross income equivalent that employees would need to earn at the highest marginal tax rate (including the Medicare levy) to acquire the benefits themselves.

The FBT payable is calculated at 47% of the fringe benefits ‘grossed-up’ value.

Deductions & GST Credits

Employers can claim income tax deductions and GST credits for the cost of providing fringe benefits. Employers can claim the GST-exclusive amount as an income tax deduction if eligible for GST credits.

However, if GST credits cannot be claimed, the full amount of the fringe benefit is deductible for income tax purposes. Additionally, employers can claim an income tax deduction for the FBT they must pay.

Employer Responsibilities

As an employer, it is essential to fulfil several responsibilities regarding FBT:

  • Identify Fringe Benefits: Determine the types of fringe benefits provided to employees.
  • Check for Concessions: Explore FBT concessions and strategies to reduce FBT liability. Some benefits may be exempt from FBT, while alternatives or concessions may be available to reduce liability.
  • Calculate Taxable Value: Accurately calculate the taxable value of fringe benefits provided.
  • Keep Records: Maintain detailed records, including employee declarations where necessary.
  • Lodge FBT Return: Lodge an FBT return and pay the FBT owed by the due date.
  • Report Fringe Benefits: If required, report each employee’s fringe benefits in their end-of-year payment information.

Navigating Fringe Benefits Tax (FBT) obligations can be complex for employers, but understanding these responsibilities is essential for compliance with tax laws.

Employers can effectively meet their FBT obligations by identifying fringe benefits, exploring concessions, accurately calculating taxable values, maintaining records, and fulfilling reporting requirements.

Seeking professional advice from tax experts or consultants can also provide valuable guidance and support in managing FBT compliance. Ultimately, staying informed and proactive is key to ensuring smooth FBT administration and avoiding penalties or liabilities.

Want to learn more about your potential FBT obligations? Speak with a trusted tax professional today.

Potential Tax Challenges Your Business Could Face At EOFY

As the end of the financial year approaches, businesses face a critical task: evaluating their financial standing and anticipating potential tax challenges.

Neglecting this assessment could lead to financial losses and punitive measures.

Let’s highlight some common tax errors businesses make and offer effective strategies to avoid them.

Mismanagement of Deductible Expenses

Businesses often miss out on valuable deductions such as office supplies and travel expenses. Establishing robust expense tracking systems is crucial to prevent this oversight. Keeping up-to-date with the latest tax regulations and seeking professional advice can help maximize eligible deductions.

Incomplete Record-keeping:

Insufficient record-keeping can create headaches during tax season. Maintaining meticulous and organised records, utilising efficient digital accounting tools, and adhering to systematic record-keeping protocols are essential. This not only ensures accurate reporting but also strengthens your business’s position in case of an audit.

Failure to Stay Informed on Changing Tax Laws:

Tax laws undergo frequent changes, requiring businesses to stay vigilant. Regular consultations with tax professionals are vital for staying informed about these developments. By doing so, your business can make informed decisions and adapt to evolving tax laws effectively.

Inadequate Tax Planning:

Effective tax planning is an ongoing process. It involves evaluating the most tax-efficient business structures, optimising income distribution, and leveraging tax credits and incentives in collaboration with your accountant. This ensures that your business remains strategically positioned for financial success.

Non-compliance With GST Obligations:

Compliance with Goods and Services Tax (GST) obligations is crucial. Implementing robust GST tracking systems, conducting regular reconciliations, and seeking professional guidance can help navigate the complexities of GST compliance. This minimises the risk of penalties and legal consequences.

By proactively addressing these common tax pitfalls, businesses can strengthen their financial health, mitigate risks, and foster sustainable growth. Our team is committed to supporting you on your business journey. If you have any inquiries or concerns regarding your tax strategy, please don’t hesitate to contact us.

Compliance in the WFH Landscape: Know The Right Method You Can Use To Claim Expenses

Ensure you’re up to date on how to claim your working-from-home expenses!

As the business landscape shifts back and forth between office, hybrid and home-based work opportunities, it’s important to remember what methods are available to you when it comes to claiming. If part of your role allows you to work from home, you may be able to claim certain expenses on your tax return this year using one of the following methods.

The Revised Fixed Rate Method:

Under the revised fixed rate method, individuals can claim 67 cents per hour worked from home during the relevant income year. This rate includes additional running expenses, such as home and mobile internet or data, phone usage, and electricity and gas for heating, cooling, and lighting. Importantly, using this method, you cannot claim separate deductions for these expenses.

To use this method, taxpayers must maintain records of the total number of hours worked from home and the expenses incurred while working at home. Additionally, they must keep records of expenses not covered by the fixed rate per work hour, demonstrating the work-related portion of those expenses.

What Records Do You Need?

Previously, taxpayers required a dedicated workspace at home. From 1st March 2023 onwards, the record-keeping requirement has shifted again, necessitating the recording of all hours worked from home as they occur.

How Does The Fixed Rate Method Work?

To utilise the revised fixed rate method:

  • Additional running expenses are incurred due to working from home.
  • Keep records of total work-from-home hours and incurred expenses.
  • Maintain records for expenses not covered by the fixed rate.

The Actual Cost Method:

Alternatively, taxpayers can opt for the actual cost method, where deductions are calculated based on actual additional expenses incurred while working from home. This includes expenses for depreciating assets, energy expenses, phone and internet, stationery, computer consumables, and cleaning dedicated home offices.

What Records Do You Need?

To claim work-from-home expenses using actual costs, you must maintain records showing:

  • The actual hours worked from home during the entire income year or a continuous 4-week period represents your usual working pattern at home.
  • Additional running expenses incurred while working from home.
  • How you calculated the deduction amount.
How Does The Actual Cost Method Work?

To claim actual expenses:

  • Incur additional running expenses due to working from home.
  • Keep records showing expenses incurred and the work-related portion of those expenses.

Australians need to understand their entitlements and tax deductions while working remotely.

Consulting with a tax advisor can provide valuable insights into available concessions, deductions, and offsets for your tax return.

By staying informed and adhering to ATO guidelines, taxpayers can ensure compliance and make the most of available deductions in the evolving landscape of remote work. Why not start a conversation with us today?

What Counts As A Valid Self-Education Claim?

As the tax season draws near, individuals seeking to claim self-education expenses must navigate the pitfalls highlighted by the Australian Taxation Office (ATO).

While pursuing knowledge and skill enhancement is commendable, it’s crucial to ensure compliance with tax regulations to avoid audits and penalties. Recent ATO rulings underscore the importance of accuracy and documentation in self-education claims, shedding light on key criteria and potential areas of scrutiny.

Self-education expenses cover a broad spectrum, including course fees, materials, and travel costs. However, not all expenses are tax-deductible. The ATO emphasises that claims must directly relate to an individual’s current employment, contributing to skills or knowledge relevant to their profession.

This criterion serves somewhat as a litmus test to distinguish between legitimate and non-eligible expenses.

Documentation emerges as a linchpin in substantiating self-education claims. Taxpayers must maintain meticulous records, including receipts, invoices, and course outlines to support deductions.

Detailed documentation streamlines the tax filing process and provides tangible evidence of expenditure legitimacy, acting as a shield in the event of an audit.

One critical area of ATO scrutiny revolves around expenses with mixed purposes.

Only the portion directly attributable to work can be claimed if an expense serves personal and work-related purposes. This underscores the importance of discerning and segregating expenses for accurate deduction claims.

Moreover, taxpayers are advised to explore cost-effective alternatives before resorting to traditional study methods. With the proliferation of online courses and digital resources, individuals should consider economical avenues for self-improvement to optimise deductions while minimising expenditure.

Another caveat highlighted by the ATO pertains to the timing of expenses in relation to income generation. Generally, deductions are limited to expenses incurred after commencing employment or business activities in the relevant field. This ensures that claims are aligned with income-generating pursuits, discouraging premature or speculative deductions.

Staying abreast of evolving tax regulations and seeking professional advice are indispensable strategies for taxpayers. Qualified accountants or tax advisors can clarify permissible deductions and offer guidance in navigating the complexities of tax law.

While the ATO encourages continuous learning and professional development, it remains vigilant in upholding tax compliance standards. Individuals can optimise legitimate deductions by understanding eligibility criteria, maintaining comprehensive documentation, and exercising prudence in expenditure while mitigating the risk of audits or penalties.

Precision and compliance are paramount in self-education tax claims as tax season approaches. If questions arise, consult with a registered tax professional like us.