Have you recently purchased life insurance?

The type of cover, deductibility of premiums and treatment of claims make life insurance a complex topic for tax. It’s a topic that individuals and businesses alike seek assistance from accountants.

The deductibility of premiums and treatment of claims payouts can be a complex, nuanced topic. The opportunities and traps hidden in those complexities are significantly amplified for professionals with higher incomes and greater-than-average wealth.

For professionals who want to structure their life insurance to optimise the balance between cash flow, tax treatment and robust protection, here’s a high-level look at the issues.

Tax Considerations – Cover Outside Super

While premiums for death, TPD (total or partial disability) and trauma cover are not tax-deductible outside of superannuation, premiums for income protection and business expenses protection are.

On the flip side of that, claims payments from death, TPD and trauma policies are entirely tax-free, regardless of whom they are paid to, while income protection and business expense benefits are classed as income and need to be declared (business expenses payments would naturally offset the actual expenses they are intended to cover).

Special Tax Treatment Of Policies Held For Business Purposes

Some tax concessions are available to life insurance policies held for business purposes, including buy/sell agreements and those covering revenue lost in the event of the death or disablement of a key person.

In such cases, policies are generally held by the business with premiums tax-deductible to the business. However, claim payments are generally regarded as income or a capital gain, depending on the purpose of the cover, and therefore subject to appropriate tax. FBT can also apply where a business pays ownership protection premiums on behalf of individual owners.

Tax On Life Claims Paid Through Super

Death benefits paid through super are generally tax-free if paid to a dependent (a term strictly defined under the law). Benefits paid to non-dependents may include a tax-free component but are likely to be subject to tax on at least some of the balance. Depending on the circumstances, the applicable rate will either be 15 or 30 per cent.

With TPD lump sum benefits, a portion is likely to be assessed as tax-free, depending on the member’s eligible service period. The remainder is subject to a tax rate that varies according to the member’s age.

Other tax-optimisation strategies include taking benefits as an income stream to qualify for tax offsets, maximising the uplift in the tax-free portion of the benefit, and washing out taxable components.

For more information about tax and life insurance, consultation with a tax professional (like us) is advised. This can be a very complicated topic to discern, with many intricacies that you may require assistance with.

Australians can experience a range of natural disasters, such as floods, bushfires, tropical cyclones, severe storms and even earthquakes. These events can cause devastation to communities and financial hardship for individuals and businesses.

While FBT may not be at the forefront of your mind when helping your employees after an emergency, it can result in potential exemptions depending on the assistance provided.

It is worthwhile to know what kinds of benefits you, as a business owner, can provide for different emergencies that will be excluded from FBT. Businesses that provide benefits to employees during an emergency situation are likely to have assistance costs be exempt from fringe benefits tax (FBT).

Exemptions will apply to benefits you provide to employees who are being impacted by or will be potentially impacted by:

• A natural disaster such as a bushfire, flood or cyclone.
• An accident such as a car accident.
• A serious illness such as cancer.
• An armed conflict such as a war.
• A civil disturbance such as a riot.

The benefits you provide to your employees that can be exempt from FBT include health care, temporary repairs or emergency needs such as food supplies, clothing, accommodation, transport or household goods. These can be of great use to employees looking to get back on their feet.

Short-term benefits you provide to an employee, such as temporary repairs to damaged property due to a natural disaster, are exempt from FBT. However, long-term employee benefits after an emergency event will not be exempt, such as a replacement car, new house or ongoing renovations.

When providing health care, certain requirements must be followed. FBT exemptions only apply to health care provided:

• For an employee of yours or from a related company.
• On your premises or the premises of a related company
• By a company doctor at an accident site.
• At or near an employee’s worksite.

If you decide to pay for your employee’s ongoing medical or hospital bills, then the FBT exemption will not apply.

The benefits costs would be deductible to the employer but not assessable to the employee and will not appear as part of their salary and wages on their payment summary.

These benefits can be of use to not only the individual employees but to your business as well. Regarding FBT, exempt benefits can be a great way to lower the tax bill. They also provide a way to assist your employees during times of great hardship.

However, to ensure you’re maximising your FBT benefits potential, consult with a registered tax agent or adviser for the right information and assistance in handling these matters.

In spite of the many challenges that have faced many industries across the country during COVID-19’s persistence and ongoing effects, the retail industry through their continued, adapted operations has continued to progress.

As a result, retail workers across many stores may find that the taxable income from their work may have been affected by the changed situation. This may be a result of additional income, less income, or stagnation of their taxable income as a result of stand-downs, business closures or a forced pause in their operations.

No matter the situation though, retail workers will still need to ensure that all of their taxable income has been accurately reported and lodged in their tax returns.

If you are a retail worker earning your income or have earned your income in the industry over the course of the previous year, you will need to know:

• What income and allowances you may need to report
• What can and cannot be claimed as a work-related deduction
• What the records are that you may need to keep track of

This information may be applicable to income earned in the 2020-21 financial year, or to income earned over the next year.

Income and Allowances That You May Need To Report

On the 30th of June, you should have received an income statement or payment salary that shows what you have earned as a retail worker throughout the year. This should include your salary, wages or allowances for that income year.

You should include all of the income that you received during the year in your tax return, regardless of when you earn it.  This may include:

• Any salary or wages that you may have earned as income.
• Any bonuses that may have been earned during the year.
• Any allowances that you may have received to compensate for an aspect of your work or to help to pay for certain expenses when you have travelled for work.

Allowances can also be if an employer pays you based on an estimated amount of what you might spend (e.g. paying cents per kilometre if you use your car for work). It may also be for the actual amount spent on the expense before or after the expense is incurred.

You may receive allowances

• For work that may be unpleasant, special or dangerous
• In recognition of holding special skills, such as a first-aid certificate or
• To compensate for industry peculiarities, such as work on public holidays.

Your employer may not include some allowances on your income statement or payment summary but may include them on your payslips. These can include travel allowances or overtime meal allowances (as paid per industrial law, award or agreement).

If that allowance isn’t on your income statement or payment summary and you spend the entire amount on deductible expenses, it should not be included in the tax return as income or claimed as a deduction. If you spent more than what was your allowance, you include the allowance as income in your tax return and can claim a deduction for your expense.

If your employer pays for the expenses that you occur exactly, that payment is considered a reimbursement. This is not included or considered to be an allowance, and as such, cannot be included as income in your tax return or claimed for a deduction.

Deductions That You May Be Able To Claim

If you are a retail worker looking for claimable deductions that may specifically apply to your profession, you need to:

• Have spent the money, and were not reimbursed for the work-related expense
• Have proof that the expense directly relates to earning your income
• Have a record that proves the expense was incurred (a receipt is usually acceptable).

You can only claim a deduction for the work-related portion of an expense. You can’t claim a deduction for any part of an expense that is not directly related to earning your income or that is private.

Some of the deductions that may be eligible as deductions for retail workers include:

• • Car expenses – if you drive between separate jobs on the same day, or drive to and from an alternate workplace for the same employee on the same day.
  • Clothing expenses – the cost of buying, hiring, mending or cleaning certain uniforms that are unique and distinctive to your job, or protective clothing that your employer requires you to wear.

• Meal expenses – the cost of overtime meals on the occasions where you worked overtime and took an overtime meal break and your employer paid you an overtime meal allowance.

• Self-education expenses – if your course relates directly to your current job.

• Seminars and conferences

• Technical or professional publications

• Union and professional association fees

• Phone and internet usage if your employer needs you to use your personal devices for work.

Record-Keeping Tips

Always keep proof of any expenses that you may have incurred for which you want to claim deductions. This is usually a receipt but can be another form of written evidence (such as an invoice). Those records must show what you purchased, when, where, and how much you spent. They must be in English

There are a few exceptions to the rule. These include small expense receipts, hard to get receipts, overtime meal expense receipts and travel and meal expense receipts. These have special rules and conditions that you need to follow if attempting to claim on these.

If you would like further assistance or information on how you can handle your tax return as a retail worker for this current financial year or for last year’s return, you can speak with us. We can assist you in the process, and make sure that your tax return is lodged correctly.

As a property investor, you might find yourself implementing repairs and renovation work onto a property to ensure that you are maximising its value on the market. However, though both can be claimed on your tax return, it’s of paramount importance that you know how to claim them. Getting it wrong can be both costly, and unlawful.

A rental property improvement is a renovation where something is improved beyond its original state and must be claimed with depreciation. This means that you are claiming a deduction for the decline in the value over the effective life of the renovation. For example, a rental property improvement that could be claimable by a property investor could include a bathroom getting retiled.

Maintenance and repairs however can be claimed differently, with all records kept containing accurate information on that work. This will assist in working out the depreciation of assets of the property.

A depreciation schedule is a report that outlines all available tax depreciation deductions for a residential investment property or commercial building. These depreciations can be claimed in your tax return each financial year and could help you to save thousands.

Investors who renovate and lodge their tax returns prior to ensuring that they have updated their tax depreciation schedule correctly could get caught out in making a mistake between the two types of work. Those who fail to properly record rental property improvements in a tax depreciation schedule risk making inaccurate claims and inviting the scrutiny of the Australian Taxation Office (ATO).

Your tax obligations and entitlements when renovating your property may change depending on how you go about it. Depending on whether you are a personal property investor, engaged in the profit-making activity of property renovations or carrying on a business involved in renovating properties, you will have to abide by certain requirements outside of maintaining the depreciation schedule.

Personal Property Investor

As a personal property investor engaging in renovations to a property:

• The net gain or loss gained from the renovation is treated as a capital gain or capital loss.
• Capital gains tax concessions such as the CGT discount and the main residence exemption may reduce your capital gain.
• You will not be required to register for GST as you are not conducting an enterprise.

Profit-Making Activity of Property Renovations

Consider yourself a ‘flipper’ of properties? You will be required to:

• Report your net profit or loss from the renovation in your income tax return as a result of the profit-making activity.
• Have an Australian business number.
• May be required to register for GST if the renovations are substantial.

In The Business Of Renovating Properties

If you are carrying out the business of renovating or flipping properties:

• They are regarded as trading stock (even if you live in one for a short period of time.
• The costs associated with buying and renovating them form part of the cost of your trading stock until they are sold.
• You calculate the business’s annual profit or loss in the same way as any business with trading stock
• You’re entitled to an Australian business number (ABN)
• You may be required to register for GST if the renovations are substantial.

In this instance, CGT does not apply to assets held as trading stock. Similarly, the CGT concessions (such as the CGT discount, small business concessions and main residence exemption) will not be applicable to the income gained from the sale of the properties.

If you are concerned about any of the topics discussed above, or want to know more about claiming property improvements on your tax return, you can come and speak with us for further information and advice.