From Peak Periods to Private Use: Mastering Deductions for Holiday Home Owner

It’s essential for property owners to understand the intricacies of deductions associated with their cherished holiday retreats. However, as the holiday season approaches, they may find that their holiday retreats become a valuable source of income.

To ensure you make the most of your potential deductions, it’s crucial to navigate the rules surrounding holiday home expenses and be aware of potential pitfalls.

What Do You Need To Know?

The primary rule is simple: you can only claim deductions for holiday home expenses if they are incurred with the aim of generating rental income. This means that any personal use of the property must be carefully considered to avoid discrepancies in deductions.

One key consideration is whether the holiday home is used or reserved by you during peak periods when it could reasonably be rented out. Deductions should be adjusted accordingly during these periods to reflect the reduced potential for rental income.

Likewise, if there are unreasonable conditions placed that hinder the likelihood of their property being rented, deductions should be reevaluated. This might include restrictive terms in advertising or setting rents significantly above market values.

To help determine the validity of your claimed deductions, here are a few essential questions your tax agent might ask:

Usage Duration

How many days during the income year did your client use or block out the property for personal use? Deductions cannot be claimed for periods when the property was exclusively used or blocked out by the owner.

Advertising Practices

How and where is the property advertised for rent, and is the rent in line with market values? Obscure advertising methods or unreasonable restrictions in adverts may impact the eligibility for deductions.

Property Condition

Will any restrictions or the general condition of the property reduce interest from potential holidaymakers? If the property is not tenantable, deductions may be compromised, as it is less likely to generate income.

Personal Use

Have your clients, their family, or friends used the property? Deductions cannot be claimed for periods of private use or when the property is kept vacant for personal reasons.

Tenant Accessibility

Is any part of the property off-limits to tenants? When claiming deductions, ensure to calculate and apportion them based on the part of the property available for rent.

By addressing these questions and ensuring that your claims are reasonable, you not only maximise your potential deductions but also reduce the likelihood of contact from regulatory authorities. Navigating these considerations thoughtfully helps level the playing field for holiday home owners and ensures compliance with tax regulations.

If y​ou are unsure about how to handle your tax obligations when it comes to the holiday home, why not speak with a trusted tax expert? We’re here to help.

Steering Clear of Tax-Related Pitfalls: The ABN and GST Fraud Alert

In the realm of taxes and financial matters, it’s crucial to tread carefully and stay within the bounds of legality. The Australian Taxation Office (ATO) recently uncovered a surge in GST refund fraud attempts, amounting to a staggering $850 million involving around 40,000 individuals.

This eye-opening revelation sheds light on the consequences of fraudulent activities surrounding the registration of an Australian Business Number (ABN) and bogus claims for GST refunds.

Understanding the Scam

The modus operandi of this scam involves individuals concocting fake businesses and ABN applications, often in their own names. Subsequently, they submit fabricated Business Activity Statements to secure illegitimate GST refunds. The sophistication of these schemes has prompted the ATO to employ advanced risk models, collaborating with financial institutions like the Reserve Bank of Australia and the AUSTRAC-led Fintel Alliance to detect and curb such fraudulent activities.

Real-Life Implications

A case in point is a woman in Wollongong who pocketed over $250,000 in fraudulent GST refunds from 63 false returns lodged between February and July 2022. Her actions have resulted in a 20-month jail term. This underscores the seriousness with which authorities are addressing these fraudulent activities.

Red Flags and Reminders:

For the wider community, the ATO has issued crucial reminders to thwart falling victim to such scams:

  • The ATO does not provide loans, and any claims suggesting otherwise are illegitimate.
  • If you’re not running a business, there’s no need for an ABN or to lodge a GST return.
  • Attempting to backdate business registration to claim a refund is a high-risk move.
  • False declarations can impact eligibility for other government payments.

Impact on Legitimate Businesses

Unfortunately, legitimate businesses may experience additional hurdles as the ATO tightens controls around ABN and GST registration to prevent fraudulent claims.

What to Do If Involved

If you inadvertently find yourself entangled in this situation, the ATO encourages voluntary disclosure. Coming forward now may yield a more favourable outcome compared to facing stricter consequences later. Seeking assistance from the ATO or engaging a trusted advisor, such as a tax agent, is crucial to rectifying the situation.

In a landscape rife with fraudulent schemes, staying informed and exercising caution are paramount. Remember, if something appears too good to be true, it’s essential to seek independent advice before taking any action.

By remaining vigilant, we can collectively contribute to a more secure and transparent financial environment.

Need To Make An Adjustment On Your Return? We’re Here To Help

Making a mistake on your tax return is a common human error. The good news is that you usually have a two-year window to amend it.

Whether you reported your income incorrectly, claimed non-deductible expenses, or forgot to exclude certain income, you can correct these errors within this timeframe.

Here are some common reasons you might need to amend your tax return:

  • Incorrect Income Reporting: Ensure your assessable income is accurately reported.
  • Non-Deductible Expenses: If you claim non- tax-deductible expenses, it’s time for an amendment.
  • Private Use Portion Error: Accidentally claiming the private use portion of an expense? You can fix that.
  • Loss Reporting: Double-check your reported losses to make sure they’re accurate.
  • Lack of Business Records: If you don’t have the necessary records to support your claims, it’s essential to amend.

The two-year amendment period generally begins from the date on your notice of assessment or when the commissioner issues the notice. Luckily, there’s no limit to the number of amendments you can make within this timeframe.

To make the amendment process smoother, regularly cross-check your records against the original documents. It’s also wise to understand what should be excluded from your business’s assessable income.

When you’re ready to fix your return, you can choose from various methods:

  • Tax Agent: Utilise a registered tax agent, registered with the Tax Practitioners Board.
  • SBR-Enabled Software: If you prefer a digital solution, use Standard Business Reporting (SBR)-enabled software.
  • Online Services for Business: Access the online services for business platform.
  • Letter: Send a letter detailing the necessary amendments.
  • myGov (for Sole Traders): If you’re a sole trader, use myGov for a hassle-free correction process.

Remember, everyone makes mistakes, and the important thing is correcting them promptly. With these options at your disposal, fixing errors on your tax return has never been easier.

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Logbooks: One Of The Best Methods For Claiming Vehicle Expenses On Your Return

As a business owner, one of the perks is the ability to claim tax deductions for expenses related to motor vehicles used in your business operations. This includes cars and certain other vehicles that play a role in running your business smoothly. The good news is that claiming motor vehicle expenses can help reduce your tax liability. Let’s explore how you can maximise this opportunity, particularly if you’re a sole trader or part of a partnership.

The Logbook Method: A Simple Way to Claim Tax Deductions

Sole traders and those operating in partnerships can claim tax deductions for vehicles used in their businesses using the logbook method. It’s a relatively straightforward approach, but it does require diligent record-keeping of your vehicle-related expenses. The expenses you can claim when using your vehicle for business purposes typically include:

  • Fuel and oil
  • Repairs and servicing
  • Interest on a motor vehicle loan
  • Lease payments
  • Insurance cover premiums
  • Registration
  • Depreciation (decline in value)
  • Calculating Your Claim with the Logbook Method

To make the most of the logbook method and ensure you’re accurately recording your expenses, consider enlisting the help of a registered tax agent. To work out the amount you can claim using this method, follow these steps:

  • Keep a logbook.
  • Calculate your business-use percentage by dividing the distance traveled for business purposes by the total distance traveled and then multiplying by 100.
  • Sum up your total car expenses for the income year.
  • Multiply your total car expenses by your business-use percentage.

It’s vital to provide the Australian Tax Office (ATO) with evidence of the expenses you’re claiming. This means keeping records of:

  • An electronic or pre-printed logbook.
  • Evidence of actual fuel and oil costs or odometer readings used to estimate fuel and oil expenses.
  • Evidence of all other car-related costs.

The Crucial Logbook

The logbook is a critical component of this claims method, and it should contain specific information, such as:

  • The start and end dates of the logbook period.
  • Odometer readings at the beginning and end of the logbook period.
  • The total number of kilometres travelled during the logbook period.
  • The number of kilometres for each journey, which can be recorded as a single journey if you make two or more trips in a row on the same day.
  • Odometer readings at the start and end of each subsequent income year for which your logbook is valid.
  • The business-use percentage for the logbook period.
  • Make, model, engine capacity, and registration number of the car.

If this year marks the first time you’re using a logbook, remember that it should cover at least 12 continuous weeks during the income year and be representative of your travel patterns throughout the year.

If you plan to use the logbook method for multiple vehicles, make sure that the logbook for each vehicle covers the same timeframe. The 12-week period you choose should indicate the business use for all vehicles. This ensures you maintain consistency and don’t alter your driving patterns to fit the logbooks.

Keep in mind that distinguishing between business and personal use is crucial for accurate claims. Generally, travel between your home and your place of business is considered private use unless you operate a home-based business and the trip was for business purposes.

Claiming motor vehicle expenses for your business can be a valuable tax-saving strategy, but it requires careful documentation and adherence to ATO guidelines. With the logbook method, you can maximize your deductions while maintaining the integrity of your business and personal expenses. So, get started on keeping that logbook and consult a tax professional for expert guidance on your journey to tax savings.

Your Tax Obligations After A Natural Disaster

As Australia braces for another bushfire season, it’s crucial to be prepared for a range of challenges, from evacuation plans to emergency-go-bags. Amidst all the chaos, you might wonder if your tax obligations should be a top priority. While it may not be your primary concern, understanding how to handle your tax records in the event of a natural disaster can be a lifesaver.

Reconstructing Tax Records After a Natural Disaster

When your tax records have been lost, damaged, or destroyed due to a natural disaster, there are steps you can take to reconstruct them. The Australian Taxation Office (ATO) is there to help in such unfortunate situations. Here’s how they provide support:

  • Lodgment Deferrals: The ATO allows for deferrals of activity statements or tax returns without penalties, giving you some breathing room to address more immediate concerns.
  • Time to Pay Tax Debts: You’ll have additional time to pay tax debts without incurring general interest charges, offering financial relief during a difficult period.
  • Tax Payments by Instalments: If needed, the ATO can arrange for tax payments to be made in instalments, making it more manageable for those affected.
  • Fast-Tracking Refunds: To expedite the process, the ATO fast-tracks refunds, helping individuals and businesses regain some financial stability.
  • Field Visits: In some cases, the ATO can arrange field visits to assist in reconstructing tax records, ensuring you’re not alone in this process.

Recovering Lost Tax Documents

In the aftermath of a natural disaster, the ATO can hold and re-issue or supply copies of essential tax documents, including:

  • Income tax returns
  • Activity statements
  • Notices of assessment

If you’ve lost your Tax File Number (TFN), don’t worry. You can still access your tax information by contacting the ATO. They can verify your identity using alternative information like your date of birth, address, or bank account details.

Employer and Bank Support

Your employer should have copies of your PAYG payment summaries, which can be crucial for your tax records. Additionally, banks can often provide bank records that have been destroyed, helping you reconstruct your financial history.

Claiming Deductions for Replacement Services

If your bank charges a fee for replacing bank records or providing services to help reconstruct records due to a disaster, you can claim a deduction in the income year when those fees are charged. This helps alleviate some of the financial burden of replacing lost documents.

Claiming Without Substantiation

In cases where it’s impossible to obtain the original documents to substantiate your claims made in tax returns or activity statements due to damage or destruction, the ATO can accept the claim without substantiation. They understand that some situations make it challenging to provide the usual documentation.

In a time of crisis, like a bushfire or other natural disasters, your focus is understandably on safety and immediate needs. However, understanding the support available from the ATO and knowing how to handle your tax records can help ease your financial burden and keep you on the right track even in the face of adversity. Remember, you’re not alone, and there are resources and assistance available to help you recover and rebuild.

How To Correctly Claim A Website As A Business Expense?

Designing, creating and maintaining a website for your business can be complicated. Using the right people, though, can be one of the best decisions you can make.

This is why many of today’s small businesses employ the services of a web developer and designer to take care of getting a website up and running since they don’t have time or expertise to be able to do it themselves.

Often, this can be an expensive venture. But luckily, small businesses can claim deductions for website development costs.

Expenditure in relation to commercial websites is commonly for:

  • labour – including contractor expenses and employee expenses
  • off-the-shelf software products, or
  • registration, licensing and other periodic usage fees.

These expenses can be incurred at any stage of the lifecycle of a commercial website.

The purpose and significance of the website modification and the associated expenditure is to be judged from a practical and business perspective. Factors to be taken into account in determining the character of expenditure incurred in modifying a website include:

  • the role of the website in the business
  • the nature of the modification to the website and its significance to the business
  • the size and extent of the modification
  • the degree of planning and level of resources employed in effecting the modification
  • the level of approval required for the modification, and
  • the expected useful life of the modification.

Capital expenditure is incurred in acquiring or developing a commercial website for a new or existing business. The expenditure is treated as expenditure on ‘in-house software’ if:

  • the expenditure relates directly to the commercial website
  • the commercial website is mainly used by the business for interaction with customers (that is, any copyright in the website is not itself exploited for profit), and

the expenditure is not deductible under a provision outside Divisions 40 (capital allowances) and 328 (small business concessions).

Business owners can also claim an outright deduction for specific running and maintenance costs, such as server hosting fees, domain name and registration fees in the same income year the expenses are incurred.

You can depreciate the expenses of a website over time. If you have chosen to allocate expenditure on your website to a software development pool, the expenses will have an effective life of 5 years (if you incur them on or after 1 July 2015).

You can also claim a deduction for some ongoing expenses associated with running and maintaining your website in the year they occur.

Examples may include domain name registration fees and server hosting expenses.

If you need help with correctly claiming a website on your tax return as a business expense, why not speak with your tax agent? We’re always willing and ready to help.

Am I Eligible For The Small Business Technology Investment Boost?

Could your small business claim a 20% bonus deduction on technology expenditure that supports their digital operations or the digitisation of their operations?

The small business technology investment boost is a broad measure intended to cover a wide range of business expenses and assets; however, questions may arise when you go to claim.

Can I Claim The Boost? 

To access the small business technology investment boost, your business needs to meet the standard aggregated annual turnover rules (with an increased $50 million threshold).

The expenditure must:

  • already be deductible for your business under taxation law
  • be incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2023.

If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use for a taxable purpose by 30 June 2023.

What Can I Claim With The Boost? 

A good indicator of eligibility is to consider if the small business would have incurred the expense if they didn’t operate digitally. That is if they hadn’t sought to adopt digital technologies in the running of their business. Using this rule of thumb, the costs below are eligible:

  • advice about digitising a business
  • leasing digital equipment
  • repairs and improvements to eligible assets that aren’t capital works.

Eligible expenditure may include, but is not limited to, business expenditure on:

  • digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks
  • digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design
  • e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth
  • cyber security – cyber security systems, backup management and monitoring services.

Whether some expenditure is eligible for the boost will depend on its purpose and link to digitising the operations of the specific small business. For example, the cost of a multifunction printer would not be eligible if it were intended only to make copies of paper documents. However, it would be claimable if it was being used to convert paper documents for digital use and storage

New and ongoing subscription costs can also qualify as eligible expenditures if related to your client’s digital operations. For example, your ongoing subscription to an accounting software platform for your business would qualify. Likewise, a new subscription for digital content that is used in developing web content to advertise their business would be eligible.

In these cases, you should keep explanations of how the expenses relate to digitising their business, as well as accurate records of all their claims.

Where the expense is partly for private purposes, the bonus deduction can only be applied to the business-related portion.

Special rules apply if claiming the bonus deduction for eligible expenditure on a depreciating asset.

To avoid confusion or complications around applying the small business technology investment boost, it may be best to speak to your trusted tax agent. We’re here to help.

Get Prepared For 31 October – What Income Do You Need To Declare?

If you haven’t finalised your tax return, you need to do so before October 31 2023. However, sometimes the form can be daunting, particularly if you’re unsure what to declare regarding income.

Certain types of income must be declared on your tax return. Whether your income results from a side hustle, a full-time or part-time position or even as a casual, it must be declared. Income that needs to be declared include:

  • Employment income (such as salary and wages)
  • Allowances and other work-related income
  • Lump sum payments
  • Reportable fringe benefits
  • Super contributions

Employment Income

Salary and wage payments you need to declare in your tax return include:

  • your normal weekly, fortnightly or monthly pay
  • JobKeeper and stand-down payments you receive because of COVID-19
  • commissions
  • bonuses, including retention bonuses to remain with your employer
  • money for part-time or casual work
  • parental leave pay
  • dad-and-partner pay
  • payments from
    • an income protection insurance policy
    • a sickness or accident insurance policy
    • a worker’s compensation scheme
  •  pay and allowances for continuous full-time service in the Australian Naval, Army or Air Force Reserve (but you may not have to declare salary and allowances while deployed overseas)
  • income you receive in connection with a joint space and defence project – unless exempt from Australian income tax
  • foreign employment income – unless exempt from Australian income tax.

If you are an employee of an Australian Government agency (and not a member of a disciplined force), the income you earn from delivering Australian official development assistance must be included.

Allowances And Other Work-Related Income

You may receive allowances or other payments concerning your employment that you need to declare in your tax return. These payments may include:

  • allowances, including travel and overtime meal allowances
  • cash tips, gratuities and payments for your services
  • consultation fees and payments for voluntary services
  • jury attendance fees
  • income for providing personal services outside of employment or in a non-business capacity (for example, income from working in the sharing economy).

Lump Sum Payments

A lump sum payment is a one-time payment that is taxed and reported differently to your salary and wage income.

You may receive a lump sum payment:

  • when you leave a job, such as
    • an employment termination payment (ETP)
    • a genuine redundancy payment
    • an approved early retirement scheme payment that exceeds the tax-free limit
  • for unused annual leave, long service leave or special leave you are entitled to when you leave a job
  • in arrears (known as back pay or lump sum payments in arrears) for money your employer owes you from an earlier income year.

Lump sum payments are included as assessable income in your tax return in the income year you receive the payment.

Reportable Fringe Benefits And Super Contributions

You need to declare:

  • reportable fringe benefits you receive from your employer (such as, a work car for private purposes, a cheap loan or free private health insurance)
  • reportable super contributions made on your behalf by your employer.

You don’t have to pay tax on these amounts. The ATO uses these amounts to determine whether you can receive certain government benefits and tax offsets.

If you have questions about declaring your income or whether certain income may be exempt, it’s best to consult with us, your trusted tax advisers.

What Income Is Considered Exempt In Your Income Tax Return?

Are you looking at the approaching 31 October deadline for individual income tax returns with plenty of questions? Don’t worry – your trusted tax professionals are here to help.

One of the more common questions we encounter around this time of the year involves declaring income – or, sometimes, when you do not need to declare income.

Exempt income is income you don’t pay tax on (that is, it’s tax-free). However, you may still need to report these in your tax return as the ATO use certain exempt income amounts to work out other calculations such as:

  • tax losses of earlier income years that you can deduct
  • adjusted taxable income of your dependants.

Exempt income includes:

  • certain Australian Government pensions, such as the
    • disability support pension paid by Centrelink to a person who is under age-pension age
    • invalidity service pension paid under the Veterans’ Entitlements Act 1986 where the veteran is under age-pension age
  • certain Australian Government allowances and payments, such as the
    • carer allowance
    • child care subsidy
  • certain overseas pay and allowances for Australian Defence Force and Federal Police personnel
  • Australian Government education payments, such as
    • allowances for students under 16 years old
    • Commonwealth secondary education assistance
  • some scholarships, bursaries, grants and awards
  • a lump sum payment you received on surrender of an insurance policy where you are the original beneficial owner of the policy – generally you do not earn, expect, rely on or regularly receive these payments – examples include
    • mortgage protection
    • terminal illness
    • a permanent injury occurring at work.

Lodging your tax return can be time-consuming – why not consult with one of our tax advisers for help? Start the conversation with us today.

Taking Away The Cryptic from Cryptocurrency

The popularity of the digital currency known as crypto often leads to many questions when it comes to tax time. However, it’s encouraged that you speak with your accountant about your obligations as soon as possible to be prepared for what you are expected to do.

The ATO classifies cryptocurrencies as property, specifically as a capital gains asset. This means that it is taxed under Capital Gains Tax provisions, where a taxpayer gains capital from the disposal of cryptocurrency if the proceeds/profit exceeds what the cryptocurrency initially cost the taxpayer. It must be reported in their assessable income.

If the taxpayer does not make a profit and instead receives a loss for the sale, they will need to report that instead in their assessable income.

There is a commonly held belief that the gains from cryptocurrency if the costs for acquiring the asset were less than $10,000 are tax-free. This is not the case.

In very limited circumstances, a cryptocurrency gain that is less than $10,000 may be classified as a personal-use asset rather than as a capital gains asset. This exemption is usually determined by the Australian Taxation Office’s private rulings according to strict criteria.

Any income derived from the sale or purchase of Bitcoin as an exchange service must be included in the assessable income reported in the tax return lodged at the end of the financial year. The best way to be sure that all of the potential assessable income resulting from cryptocurrency is recorded in next year’s tax return is to maintain immaculate records. You will need to ensure that a record is kept of:

  • The date of each transaction
  • The amount in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
  • Details of the transaction,
  • Any associated expenses, like fees and commissions, and
  • Details of the other party (the Bitcoin public address is enough).

If you have been involved in the acquisition or selling of bitcoin and want to be sure that you’re prepared for your next tax return, start a conversation with us about your obligations and potential tax liabilities sooner rather than later. If the circumstances around your tax liability change, it will put us in a better position to assist you.