Watch Out For Incorrect Claims! Property-Related Deductions Are On The Watchlist

Ensure you are doing the right thing with your property-related claims this tax return season.

The tax office is paying close attention to rental property owners, especially those who own a holiday home, who incorrectly claim for initial repairs to recently acquired rental properties.

One key concern is people claiming expenses when the property is not genuinely available for rent. For example, if the property is only available for a set period of time and unavailable for other months of the year, claims can only be made for the period of time that the property was available for rent or rented out.

You may need to be prepared to answer questions such as:

  • How many days was it rented out, and was the rent in line with market values?
  • Where do you advertise for rent, and were any restrictions placed on tenants?
  • Have you, your family or friends used the property?

Answering questions like these can give us more information that assists us in determining if this is a valid deduction to claim.

With the ATO taking a broader approach in monitoring rental deductions, now may be the perfect opportunity for holiday home investors to review the rules surrounding holiday home tax deductions to ensure that they can address any risks or issues in a timely manner.

Areas where rental property owners are incorrectly claiming deductions include:

  • Claiming excessive deductions
  • Partners splitting income and deductions
  • Repairs or maintenance claims
  • Claiming for interest deductions.

Homeowners should be aware that it is not just holiday homes that are under focus by the ATO. The office will also address rental property owners who incorrectly claim deductions.

A common mistake that has risen among rental property owners is claiming deductions for initial repairs to rectify damage, defects or deterioration that existed at the time of purchasing the property.

Taxpayers are not entitled to claim a deduction for any repairs made to their rental property for issues that existed when they purchased it, even if the repairs were carried out to make the property suitable for rent.

Instead, the cost of these repairs is used to work out any profit or capital gain when the property is sold.

Make claiming property-related expenses a hassle-free situation this tax season by consulting with your trusted tax agent. We’re here to help.

Tax Avoidance Schemes On The ATO’s Radar

Tax avoidance schemes are just one of the many red flags the Australian Taxation Office will be keeping its eye on this tax season.

In the right hands and for the proper purpose, holding companies can be set up to buy and hold all the shares and assets in one or more of their subsidiary companies. They are often advantageous for asset protection, business diversification & structuring reasons.

However, some individuals are misusing them for tax avoidance purposes.

Any arrangements that use interposed holding companies to avoid tax will be subject to additional scrutiny from the Australian Taxation Office and potentially severe penalties.

These may be arrangements where individuals seek to access private company profits without any additional individual tax liability by arranging for the profits to be passed to them via an interposed company.

These arrangements may involve:

  • A private company (first company) has retained profits on which it may have paid tax at the corporate rate. Shares in the first company are held by an individual who may also be a director of the first company.
  • The individual disposes of their shares in the first company to a private company (interposed company), receiving shares in the interposed company in return.
  • The shares in the interposed company are issued at a paid-up amount being the same as, or similar to, the net assets of the first company, which includes the retained profits of the first company.

Any involvement in tax-related schemes highlighted by the ATO throughout their current warnings and notices could involve severe penalties for taxpayers and agents promoting them.

Improper business structuring can lead to significant tax consequences, so let us help you avoid issues. Start a conversation with us today.

Earning Income Via The Sharing Economy? Don’t Make A Critical Tax Mistake…

In Australia, any income earned by a job may be considered taxable income. Those who receive their income via the sharing economy are no exception to the rule.

In fact, further complications can result from incorrect understandings of how the income tax and goods & services tax may apply to those individuals. ‘

The sharing economy is a socio-economic system built around sharing resources, often through a digital platform like a website or an app that others can purchase the right to use for a fee.

Popular sharing economy services and activities that could be subject to income tax include

  • Being a Driver for popular ride-sharing/ride-sourcing services and obtaining fares for those services
  • Renting out a room, whole house or a unit on a short-term basis
  • Sharing assets (such as cars, parking spaces, storage space or personal belongings) through platforms such as Camplify, Car Next Door, Spacer, Toolmates or Quipmo.
  • Creative or professional services provided by individuals through online platforms to fill a need of others (also known as the gig economy)

You need to remember some things about the income and goods & services tax for these popular sharing economy services, including:

Ride-Sourcing/Ride-Sharing

If you’ve ever caught an Uber or gotten a Lyft, you’ve been on the passenger side of ride-sourcing. The income received from ride-sourcing is subject to goods and services tax (GST) and income tax is applied to it. All drivers on ride-sourcing platforms in Australia must have an Australian business number and be registered for GST.

GST requires:

  • An ABN
  • GST is to be registered from the day you start, regardless of how much you earn.
  • GST is to be paid on the total fare.
  • Business activity statements (BAS) to be lodged monthly or quarterly.
  • To know how to issue a tax invoice (any fares over 82.50 must be provided if asked).

Income tax needs to:

  • Include the income you earn in your income tax return
  • Only claim deductions related to transporting passengers for a fare, including apportioning expenses limited to the time you are providing a ride-sourcing service
  • Keep records of all your expenses and income.

Renting out all or part of your home

Renting out all or part of your residential house or unit through a digital platform can be an easy way to supplement your income, especially if you aren’t using the property at that time. If you do this, you:

  • Need to keep records of all income earned and declare it in your income tax return
  • Need to keep records of expenses you can claim as deductions
  • Do not need to pay GST on the amount of residential rent you earn.

Sharing Assets (Excluding Accommodation)

Assets that can be shared through a platform include personal assets (e.g. bikes, caravans), storage or business spaces (e.g. car parking spaces) or personal belongings like tools, equipment and clothes.

When renting out or hiring these (share) assets that you own or lease through a digital platform, you:

  • Need to declare all income you receive in your income tax return
  • Are entitled to claim certain expenses as income tax deductions
  • Need to keep records of the income you earn and of the costs you can claim as deductions

Providing Services

Providing time, labour or skills (services) through a digital platform for a fee requires you to report income in your tax return. Deductions for expenses directly related to earning this income can be claimed, and records must be kept to support these claims.

The following services that can be provided are considered to incur assessable income that needs to be reported in your tax return:

  • Delivering goods
  • Performing tasks and activities
  • Providing professional services

Those who fail to declare their income from their sharing economy side hustle may incur penalties in the form of interest on their tax bills or potential criminal charges.

You must ensure your tax return is correctly lodged and all income is declared if you are a gig economy worker. If navigating your tax return feels daunting, consider contacting us for assistance.

Make Sure You Have Everything Before Lodging!

While lodgement of your tax return can begin from 1 July, you have a much higher chance of submitting a return with incorrect or missing information.

This is because some information that will automatically be pre-filled on your return (such as PAYG or STP information from your employer) will likely not have been lodged with the ATO.

If you forget to include everything, it will slow down the progress of your return, and you’ll likely end up with more work to do down the track. Lodging your return in late July is more likely to result in lodging a return with the information you need for a correct and proper refund.

We want to help you make this tax return season the smoothest it can be – here are our top tips for you.

  • Make sure to get your deductions right on the first go and claim what you are entitled to – some tax deductions are no longer available (such as the shortcut method), so utilising out-of-date deductions could throw up a major red flag for the ATO.
  • Make sure your work-related claims reflect your working arrangements for this financial year – if you are in a hybrid working arrangement for your role, you must provide proof.
  • If you want to claim bills such as electricity and gas as a part of working from home, you need to keep evidence of the expenses, such as a monthly or quarterly bill.
  • If you want to claim motor vehicle expenses as part of your return, make sure you know the rules, or speak with a professional adviser for assistance with complying.
  • Keep ALL records of any deductions that you may be claiming for, and make sure you have the records to back up any claims made.
  • Be aware that self-education expenses and training costs are different types of deductions that apply to different things. Incorrectly claiming expenses under one of these can raise red flags for the ATO.
  • Check that all available pre-fill data (including group certificates and your health insurance, if applicable) has been populated in the form.

When it comes to your tax return this year, don’t trust that things will be as simple as copying your tax return from the previous year.

If you have made a mistake in your lodgement, you can fix the errors or omissions through the ATO’s online amendment process (accessible via myGov) or by consulting a registered tax agent, like us.

Cars, Tax Returns & What You Can Claim

Claiming car-related expenses as tax deductions might seem like the easiest way to get a more significant return – but it’s also one of the most carefully monitored.

Here are a few tips on what you need to watch out for when claiming car-related deductions.

Claiming The Cost Of Your Commute

There are specific rules around travel to and from work when it comes to tax deductions, and your work commute expenses for travel are not covered as a tax deduction. Public transport and travelling by car are not claimable as a tax deduction.

Claiming Expenses That Can’t Be Backed Up

One of the most common mistakes that car owners can make is claiming car costs using the ATO’s cents-per-kilometre method without the receipts and paperwork to back this up. Keeping accurate and tax-compliant vehicle logbooks is essential. Businesses and employees must be able to prove their vehicle-related claims to the ATO if asked.

Overlooking Depreciation

Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy.

If you had rented your car out on a share economy platform or used it for work, rather than try to work out the depreciation of the asset yourself, speaking with someone like us can avoid any complications that may arise from incorrect application.

As always, tax can be a tricky subject, especially regarding vehicles. It is best to consult with your tax advisor or agent for any queries you may have during this tax return season. We are ready and willing to help.

Are You A Home-Based Business? Here’s How To Maximise Your Tax Deductions.

Small business owners may be able to claim deductions for the costs of using their home as a principal place of business when filing their income tax returns.

A home-based business is one where an area of your home is set aside and used exclusively as a place of business. If you do not have an area set aside and used exclusively as a place of business, but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.

Tax deductions may be claimed for the business portion of household expenses; however, ensuring you are claiming expenses you are entitled to can be challenging. How you operate the business out of your home will determine the expenses that may be claimed. Your business structure will also affect your entitlements and obligations when claiming deductions on home-based business expenses.

Generally, three types of expenses can be claimed: running expenses, occupancy expenses, and in some cases, the cost of motor vehicle trips between your home and other locations (if the travel is for business purposes). You can claim occupancy and running expenses if you have an area of your home set aside as a ‘place of business’.

Running expenses refer to the increased costs of using your home’s facilities for the running of your business, including:

  • Repairs to your business equipment.
  • Heating, cooling and lighting a room.
  • Cleaning.
  • Phone and internet.
  • Depreciation of business furniture and equipment.

To calculate the running expenses of your home-based business, you must ensure that you exclude your private living costs and that you have records to show how you calculated the expense.

Occupancy expenses are those that you pay to own or rent your home, including:

  • Mortgage interest or rent.
  • Land taxes.
  • Council rates.
  • Insurance premiums.

Occupancy expenses are calculated based on the floor area of your home that is used for the business and the portion of the year that it was used.

Small business owners should note that capital gains tax (CGT) payments may be required when your home was used for business. However, CGT won’t apply if you operate your business from a rented home, didn’t have an area expressly set aside for your business activities or the business was run through a company or trust.

Records that need to be kept include written evidence, tax invoices and receipts, and should substantiate your claims for all home-based business expenses. This needs to be kept for at least 5 years to substantiate your claims.

Your business structure can affect the method you can use and the expenses you can claim, especially if your business is a company or trust. If you are a sole trader, a partnership or a company or trust, there are specific rules that may apply to you. Speaking with a trusted tax adviser is the best way to ensure you comply with those guidelines – why not start a chat with us today?

WFH, Mobiles, Meals & Motor Vehicles – Who’s In The Firing Line With The ATO?

It’s that time of the year again!

At the end of the financial year, the ATO announces a range of tax hotspots they’ll be paying careful attention to in individual income tax returns lodged.

This year, be wary of making mistakes while claiming the following:

  • Working From Home Deductions: 
  • Particularly in light of the new rules introduced this year for claims using the ATO’s new 67 cents per hour fixed rate, which will see many taxpayers caught out for failing to have proper substantiation to back up their claim.
  • Mobile phone & Internet Costs
  • A particular focus will be on people who are claiming the whole (or a substantial part) of the bill for their personal mobile as work-related
  • New for this year is the cross-over with home working claims as the new fixed rate per hour includes an element for mobile phone and internet use – the ATO will be on the lookout for double dipping!
  • Laundry Allowance & Uniforms
  • Claims for work-related clothing, dry cleaning and laundry expenses, especially when the amount of working from home could be expected to have led to a reduction in these claims.
  • Motor vehicle claims 
  • Where taxpayers take advantage of the 78 cent per kilometre flat rate available for journeys up to 5,000kms (the ATO is concerned that too many taxpayers are automatically claiming the 5,000km limit regardless of the actual amount of travel)
  • $300 Or Less Rule
  • Incorrectly claiming deductions under the rule that allows taxpayers who have incurred work-related expenses of $300 or less in total to make a claim without receipts (the ATO believes that some taxpayers are claiming this – or an amount just less than $300 – without actually incurring the expenses at all).
  • Overtime Meal Claims
  • Union Fees and Subscriptions

If you want to make sure that you understand precisely what you need to do to lodge your tax return, keep this in mind:

  • If you earned money, you need to report it.
  • If you can’t prove an expense, you can’t claim it.
  • If you want to make extra sure that you’ve got it right, see a tax agent

For assistance during the lodgement of your tax return, you can seek advice from us. We’re here to help ensure you meet your tax obligations by reporting your income correctly for this financial year.

Cars, Phones, Laundry: What Can Tradies Claim In 2023?

Are you involved in a trade, or do you know someone who is involved in one?

It’s vital that these individuals understand what they can claim work-wise on their tax returns this year (and that they should be preparing for it sooner rather than later).

Car Expenses

You can claim a deduction for the cost of travel while performing your duties. This includes travel between different work locations, including for different employers. Normal trips between home and work are private in nature and can’t be claimed. This applies even if you:

  •  live a long way from your usual workplace, or
  • have to work outside normal business hours (e.g. weekend shifts).

In limited circumstances, you can claim the cost of trips between home and work, where:

  • you had shifting places of employment (that is, you regularly worked at more than one site each day before returning home)
  • you were required to carry bulky tools or equipment for work and all of the following conditions were met

> The tools or equipment were essential for you to perform your employment duties and you didn’t carry them merely as a matter of choice.

> The tools or equipment were bulky – meaning that because of their size and weight they were awkward to transport and could only be transported conveniently by the use of a motor vehicle.

> There was no secure storage for the items at the workplace.

If you claim car expenses, you must:

  • keep a logbook of your work trips, or
  • be able to show us your claim is reasonable if you use the cents per kilometre method (for claims up to 5,000 km only).

An important note to make is that your vehicle is not considered to be a car if it is a vehicle with a carrying capacity of:

  • one tonne or more, such as a ute or panel van
  • nine passengers or more, such as a minivan. In these circumstances (eg if you use a ute), you can claim the proportion of your vehicle expenses that relate to work – such as fuel, oil, insurance, repairs and servicing, car loan interest, registration and depreciation.

You also will need to keep receipts of your actual expenses.

You cannot use the cents per kilometre method for these vehicles. While keeping a logbook is not required, it is the easiest way to show how you have calculated your work-related use of the car.

Self-education Expenses

You can claim a deduction for self-education expenses if your course relates directly to your current job – for example, your apprenticeship course. You can also claim a deduction for the cost of travel from your home to your place of education and back, or your workplace to your place of education and back. You must keep records of your travel expenses to claim a deduction.

You can’t claim a deduction if your:

  • study is only related in a general way or is designed to help you get a new job. For example, if you’re an apprentice carpenter you can’t claim the cost of study to enable you to become a builder.
  • Your employer pays your apprenticeship course fees outright or reimburses you upon course completion.

Tools & Equipment Expenses 

You can claim a deduction for tools or equipment you must buy for your job. If you also use the tools or equipment for private purposes, you can’t claim a deduction for that use.

For example, if you have a toolset that you use for private purposes half the time, you can only deduct 50% of the cost. If your employer or another person supplies the tools or equipment, you can’t claim a deduction.

If a tool or item of work equipment you only used for work:

  • cost more than $300 – you can claim a deduction for the cost over a number of years (depreciation)
  • cost $300 or less – you can claim an immediate deduction for the whole cost.

Clothing Expenses

You can claim a deduction for:

  • the cost of buying, mending and cleaning uniforms that are unique and distinctive to your job – eg a uniform your employer requires you to wear.
  • protective clothing your employer requires you to wear – eg hi-vis vests, steel-capped boots and safety glasses.

You can’t claim a deduction for plain clothing worn at work, even if your employer tells you to wear it or you only wear it for work (eg workwear or tradie wear that is not designed to provide you with sufficient protection from the risk of injury at your worksite)

You may be able to claim other work-related deductions:

  • protective equipment such as sunscreen, sunhats and sunglasses
  • union and professional association fees
  • phone expenses if you have to make calls or texts for work.

Remember that you can only claim part of the work-related expense in this instance and may require records (such as receipts) to prove this.

If you have any concerns or questions about your upcoming tax return, you can consult us – we’re equipped to assist you in all tax-related matters.

Tax Planning Tax Tips For Business Owners

As the financial year comes to a close, now is the time to visit your accountant or tax advisor to discuss tax planning for your business in 2023.

At the end of every financial year, business owners should be reviewing and measuring their performance in comparison to the previous year.

By regularly reviewing this information, a greater understanding of the basis for tax planning and budgeting can be determined more accurately. While tax planning is a process that should be continuously managed over the year for better and more adaptive results, it’s never too late to start.

This is especially relevant now as business owners need to understand the business’s current ability to move forward in the current economic circumstances and plan for the future. Otherwise, past mistakes could be repeated in the future.

Here are some general tax tips that business owners can take with them into the 2023-2024 financial year.

Timing Of Expenses

An expense is an allowable deduction that is necessarily incurred in carrying on a business or for the purpose of gaining or producing assessable income. Expenses should be recognised in the same period as the revenues to which they relate when it comes to lodging your tax.

Most prepayments that are made now are not deductible until the period to which they relate (though some exceptions may apply). Small businesses and individuals may be able to deduct 12 months of prepayments in the year paid, as an expense.

Payments to Workers

Deductions on payments to workers (whether they are employees, contractors, directors, etc.) can only be claimed when the business has complied with its PAYG withholding and reporting obligations.

Family businesses or businesses that employ family members should be especially concerned with preparing for this, as they have additional obligations to ensure that they are correctly paying the right amount of tax. If they have received wages or been given allowances below the tax-free threshold, they will need to be registered as a withholder and a PAYG summary provided.

Your business should already be in the position to process payments through Single Touch Payroll, as it was made mandatory for all businesses to use from 1 July 2021.

Bad Debts

Conduct a review of the debts that may be affecting your business. If any of these are unlikely to be recovered, the best course may be to write them off as ‘bad’ prior to the end of the financial year. You can speak with us about this process to ensure that it is performed correctly (and that you are able to do so). Writing off bad debts can reduce your income tax and generate a GST refund.

Bonuses

Businesses may have provided their staff with bonuses at the end of the calendar year for performance expectations being met or as a retention bonus. It is important to remember that bonuses are only deductible when they are actually incurred.

If you have concerns regarding your tax planning this year, why not speak with one of our trusted advisers? We have the knowledge and experience to assist you with your tax planning needs.

What You Can & Can’t Claim For 2022-23’s Return

The 2022-2023 tax return may look different to your previous returns, but there’s a reason – and it’s probably due to an expiry date. Here are our top reasons that your tax refund this year might not feel as bountiful as the previous year (and a few others to remember when lodging)

Work From Home Deductions Changed

The shortcut method made available during the COVID-19 pandemic and lockdowns is no longer available to claim your running expenses with (at the rate of 80 cents per hour worked). Instead, these expenses can be claimed using the revised fixed rate method (67 cents per hour) or the actual costs method.

LMITO Is No Longer Available

The lower-middle income tax offset expired on 30 June 2022, making the 2021-22 return the final year that it was applicable. You may notice that your tax return looks a little different this year as a result.

Temporary Full Expensing Ceases 30 June 2023

The deadline for the expanded Temporary Full-Expensing measure has not been extended by the Federal Budget 2023-24, meaning that it will cease on 1 July 2023, and the write-off will revert to $1,000 from that date.

Businesses will likely feel a cashflow impact, as they will now need to spread depreciation deductions for assets more than $20,000 out over a number of years rather than claim them back up front.

Small Business Instant Asset Write-Off Returns 

The instant asset write-off will return for the 2022-23 financial year (between 1 July 2023 to 30 June 2024). If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is available for each asset that costs less than $20,000.

If you have any concerns, questions or confusion around your tax returns this financial year, make sure to speak with your trusted tax adviser. We are in the business of helping – how can we start?