What is the $20,000 tax break?

Businesses with an annual turnover under $2 million can claim immediate tax deductions for as many less than $20,000 purchases they make before June 30, 2017, rather than having to claim those purchases as deductions spread over several years.

This is a huge increase from the current instant asset write-off threshold of $1,000.

The Federal Government has allocated $1.75 billion to fund the scheme, which will run for the next two years.

Who is eligible?

The $20,000 tax break applies to businesses that can demonstrate ongoing activity via quarterly Business Activity Statements, Small Business Minister Bruce Billson said.

The business must be actively trading to be eligible for the break.

What’s covered?

“If you run a cafe, it might be new kitchen equipment, or new tables and chairs,” Mr Hockey said in his budget night speech

“If you’re a tradie, it might be new tools or a computer for the home office.”

“Cars and vans, kitchens or machinery … anything under $20,000 is immediately 100 per cent tax deductible from tonight.”

In other words, any asset involved in running a business is covered by the scheme

What’s not?

Assets over $20,000 are not eligible for the instant tax write-off, but can be fully written off over a longer period.

Any assets over $20,000 can be added together and depreciated at the same rate. These assets are depreciated at 15 per cent in the first income year, and 30 per cent per year thereafter.

If the value of the pool is below $20,000 until the end of June 2017 it can be immediately deducted too.

There are a few items not deductible, including some horticultural plants and any software developed in-house by a business.

Software purchased for business use, for example, an account-keeping program, can be claimed.

Accountants have also warned they expect the ATO to closely monitor the number of Australian Business Number (ABN) applications, to keep an eye on any attempt to rort the scheme.

What else do you get?

In addition to the instant asset write-off, companies with annual turnover of less than $2 million will have their tax rate lowered, from 30 per cent to 28.5 per cent.

This is the lowest small business company tax rate in almost 50 years.

Unincorporated businesses, such as sole traders, partnerships and trusts, will also get a 5 per cent tax discount from July 1 up to $1,000 a year.

What does this mean for you?

If you currently run or you are thinking of starting a small business, now is the time to act, according to ABC’s AM program host Michael Brissenden.

“The small business package is extraordinarily generous. If you were ever thinking about opening a cafe, do it now,” Brissenden wrote last night.

“Buy as many espresso makers, fridges, photocopiers and lawn mowers as you like, and claim an immediate tax deduction until 2017.”

However Australia Institute executive director Richard Denniss has warned small business people to be cautious of taking advantage of the scheme before it passes Parliament — if it does at all.

“The scale and generosity of this proposal is unprecedented and, while the Treasurer has announced that it will begin [on budget night], history suggests he shouldn’t take the Senate for granted,” Mr Denniss said.

Author
Tegan Taylor – ABC News, August 2016

This article is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Integrity One Planning Services Pty Ltd is a Corporate Authorised Representative No. 315000 of  Integrity Financial Planners Pty Ltd ABN 71 069 537 855 (which is the holder of AFSL 225051). Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. We recommend that you seek personal advice from an advisor prior to implementing any of the information contained in this publication.

Retirement is a time of life when you should be relaxing and enjoying the fruits of your labour, rather than stressing about how to make ends meet.

Planning for retirement is crucial, and if you want to be financially secure, you should think about all avenues to adequately fund your retirement, including superannuation and the Age Pension.

For that reason, it’s a good idea to seek professional financial advice in order to achieve your goals.

Determining the Size of your Nest Egg

How long you live and the type of lifestyle you desire will determine how much you’ll need to retire.

If you are an above-average income earner, generally you will require two-thirds of your pre-retirement income to maintain the same standard of living.

The Association of Superannuation Funds of Australia (ASFA) estimates how much money people over the age of 65 need to support a modest or comfortable retirement.

A modest retirement means being able to afford basic activities, while a comfortable retirement would give you perks such as a range of recreational pursuits, private health insurance, international holidays, a mid-range car and electronic equipment.

Assuming an average life expectancy of about 85 and that you own your own home, couples wanting a comfortable retirement would have annual living costs of $59,619, or $1,143 per week. ASFA estimates singles wanting a comfortable retirement would have annual living costs of $43,372, or $832 a week.

For a modest retirement, couples would have annual living costs of $34,560, or $663 a week, while for single individuals the estimate is $23,996, or $460 a week.

Far from the $1 million figure that’s often bandied about, a comfortable nest egg for a couple would start at $640,000, or $545,000 for an individual, depending on your income needs and assuming you receive a partial Age Pension to assist with ongoing funding of your retirement.

At present, the costs associated with a modest retirement are mostly met by the Age Pension, so ASFA estimates a couple would need $35,000 in savings at retirement, while singles would need $50,000 in savings at retirement.

It’s important to note that the Age Pension should not be relied upon as a retirement plan, especially given recent changes.

For further estimates, see the Australian Securities and Investments Commission’s retirement calculator.

Author
LDB Group – January 2017

This article is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Integrity One Planning Services Pty Ltd is a Corporate Authorised Representative No. 315000 of  Integrity Financial Planners Pty Ltd ABN 71 069 537 855 (which is the holder of AFSL 225051). Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. We recommend that you seek personal advice from an advisor prior to implementing any of the information contained in this publication.

All sole traders must be aware of exactly what you can claim as it will help you ward off a large tax bill when tax time looms.

In this article, we provide an overview of what you can claim as a sole trader, including unusual claims you might not be aware of and industry-specific tax deductions.

Allowable Deductions for Sole Traders

If your expenses relate directly to running your business and earning assessable income, you can claim them in your personal tax return.
According to the Australian Taxation Office, you can generally claim the following operating expenses in the year you incur them:

• Advertising
• Bad Debts
• Home Office Expenses
• Bank Charges
• Business Motor Vehicle Expenses
• Business Travel
• Education and Training
• Professional Memberships
• Insurance
• Interest
• Telephone Bills
• Repairs/Maintenance
• Tax Preparation Costs

Typically, depreciation on capital expenses, which are expenses that have a longer life, is claimed over several years. Examples include:

• Computers
• Electrical Tools
• Furniture
• Motor Vehicles
• Plants and Equipment

If an expense is for both business and private use, you can only claim the business portion. As a sole trader, you cannot claim deductions for private or domestic expenses, entertainment, fines, nor expenses relating to income that is not taxable, such as money earned from a hobby.

Additional and Unusual Claims for Sole Traders

Did you know you can prepay your expenses, for a period of less than a year, and attract a tax deduction? As a sole trader, you can prepay subscriptions, certain business travel expenses, training events and business asset repairs, for example.

Industry-specific tax deductions

The industry you work in affects your tax deductions.

For example, mechanics can claim the cost of using their car to travel between home and work if they’re transporting bulky tools and there is no secure storage on site.

Travel agents may claim expenses associated with attending conferences and industry promotions, including passport fees and travel insurance.

Author
LDB Group – January 2017

This article is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Integrity One Planning Services Pty Ltd is a Corporate Authorised Representative No. 315000 of  Integrity Financial Planners Pty Ltd ABN 71 069 537 855 (which is the holder of AFSL 225051). Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. We recommend that you seek personal advice from an advisor prior to implementing any of the information contained in this publication.

On 31 March 2017 the Fringe Benefits Tax (FBT) year ended and the ATO will be reviewing whether all employers who should be paying FBT are paying it, and also whether they are paying the right amount.

To assist in meeting FBT obligations every employers must know:

• Should you be registered for FBT?
• What information do you need to give your accountant
• Are there any changes to the FBT rates come 1 April 2017?
• How can you reduce your FBT liability
• Do you need to review your salary sacrifice agreements

FBT Rate Changes

As of 1 April 2017 the new FBT rates are:
– FBT Rate: 47%
– Type 1 Gross Up Rate: 2.0802
– Type 2 Gross Up Rate: 1.8868

Should you be registered for FBT?

You will need to be registered for FBT if you provide any employees including directors with:

• Cars
• Car Parking
• Food, Drink and Entertainment
• Employee Discounts
• Reimbursement of personal expenses

What items are exempt from FBT?

If you provide these items it is unlikely that you will have to worry about FBT:

• Mobile Phones
• Lap Tops
• Tablets
• Portable Printers
• Protective Clothing
• Tools
• Other minor infrequent benefits with a value of less than $300

Easier Way to Manage Vehicle Log Books

The ATO has a process for validating the business use percentage of a car for employers with 20 or more cars required for work related purposes This is the ‘simplified method’ and if the access conditions are met an average business use percentage to all ‘tools of trade’ cars in your fleet for first log book year and the next 4 years can be applied. The conditions that must be met are:

• Valid log books are kept for at least 75% of the cars in the log book year
• The model and make of the car are chosen by the employers
• Each fleet car has less value than the ‘luxury car’ limit when purchased, generally $64,132 in 2016/2017
• The cars aren’t provided under a salary packaging arrangement / employee remuneration package
• Your employees can’t choose to receive additional remuneration in lieu of using the cars.

Is it Time to Review your Salary Packages?

As the FBT rate changed on April 1 2017, all existing arrangements should be reviewed so that you and your employee know what the package looks like now that the rate is at 47%. The lower rates makes salary packaging less expensive and potential savings can be found. For example, for employees earning above $180,000 there is a one-off opportunity between 1 April 2017 and 30 June 2017 to reduce their taxable income with the FBT rate drop covering the 2% Debt levy imposed. Be careful though not to drop the individual’s income below the Debt levy threshold, and make sure the benefits provided under the salary sacrifice agreement replace amounts that would have been payable as salary, the employee agrees in writing to forego income before it is earned in return for benefits of a similar value, and the sacrificed amount comes out of the employee’s wages and not reimbursed into their bank account.

New Rules for Entertainment Benefits

Where an employee agrees to receive meal entertainment benefits instead of future salary, i.e. as part of a salary sacrifice arrangement, concessions have been removed as of the 2017 FBT year. The changes that should be noted are:

• These benefits are to be included in the employee’s individual fringe benefits amount being reported on the payment summary when it exceeds the $2,000 reporting exclusion threshold
• You can no longer use the 50-50 split or 12-week register methods to value these benefits
• A new separate $5,000 cap for ‘salary sacrificed’ meal entertainment benefit now exists for employees of charities and not-for-profits. If these benefits exceed the cap the excess will be counted toward their current $31,177 exemption or $17,667 rebate cap

Ways to Reduce your FBT Liability

• Replace your fringe benefits with cash salary
• Provide benefits that your employees would be entitled to claim as an income tax deduction if they had to pay for the benefits themselves
• Look at providing benefits that are exempt from FBT
• Use employee contributions such as an employee paying for some of the operating costs of car fringe benefit such as fuel that you don’t reimburse them for. Though you should note that employee contributions may be deemed assessable income to you and subject to GST

Author
Julie Cameron – HTA advisory 2017

This article is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Integrity One Planning Services Pty Ltd is a Corporate Authorised Representative No. 315000 of  Integrity Financial Planners Pty Ltd ABN 71 069 537 855 (which is the holder of AFSL 225051). Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. We recommend that you seek personal advice from an advisor prior to implementing any of the information contained in this publication.

If some of your work is performed in a home office you may be able to claim a deduction for the costs you incur in running your home office, even if the room isn’t solely used for work related purposes.

The categories of home office expenses include:

• Running Expenses
• Telephone Expenses
• Depreciation on Equipment
• Occupancy expenses where the home is the place of the business

Running Expenses

Deductions can be claimed for expenses related to running the home office which consists of electricity, gas and depreciation of office furniture. These deductions should be made in the amount of the actual expenses incurred or 45 cents per hour.

Deductions are not allowed for addition costs incurred such as if you work in a room where others are watching TV, or the income producing use of the home is incidental e.g. 45c per hour would not be allowed for a fax machine permanently left on to receive documents.

For deductions to be permitted you will need receipts for:

• Home office equipment used for work purposes
• Repairs relating specifically to the home office or furniture and equipment used for work purposes
• Cleaning expenses of home office
• Any other day-to-day running expenses for the home office
• Diary entries to record your small expenses ($10 or less) totalling no more than $200

Telephone and Internet Expenses

If work or business calls can be identified from an itemised telephone account then the deduction can be claimed for the work or business related portion of the telephone account. A representative four week period will be accepted as establishing a pattern of internet and telephone use for the entire year.

Telephone rental expense may be partly deductible if you are “on call” or required to contact your employer or client on a regular basis.

Depreciation on Equipment

Depreciation on home office equipment including office furniture, carpets, computer, printer, photocopier, scanners, modem etc. used only partly for work or business purposes can be apportioned.

The claim is based on a diary record of the income related and non-income related use covering a representative four week period. The diary needs to show:

• The nature of each use of the equipment
• Whether that use was for an income producing or non-income producing purpose
• The period of time for which is was used

Occupancy Expenses

Are allowed only if the home is used as a place of business. Occupancy Expenses can include:

• Rent
• Mortgage Interest
• Water Rates
• Repairs
• House Insurance Premiums

The following factors, none of which is necessarily conclusive on its own, may indicate whether or not an area set aside has the characteristics of a place of business:

• The area is clearly identifiable as a place of business
• The area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally
• The area is used exclusively, or almost exclusively, for carrying on a business, or
• The area is used regularly for client or customer visits.

If you use your home to carry out income producing activities as a matter of convenience, you are not entitled to a deduction for occupancy expenses. It would be rare for an employee to be able to claim occupancy expenses.

Author
Julie Cameron – HTA advisory 2017

This article is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Integrity One Planning Services Pty Ltd is a Corporate Authorised Representative No. 315000 of  Integrity Financial Planners Pty Ltd ABN 71 069 537 855 (which is the holder of AFSL 225051). Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. These articles are not owned by Integrity One Planning Services. We recommend that you seek personal advice from an advisor prior to implementing any of the information contained in this publication.