rental-property

Ensuring Tax Compliance for Your Rental Property

by Advice

Be prepared come tax time so you don’t fall on the side of the ATO’s auditing targets.

‍Perhaps you’ve heard the news about the Australian Taxation Office (ATO)  announcing its efforts to target landlords who are over-claiming tax deductions and failing to report income. According to data, it estimates, approximately 9 our out 10 of landlords are inaccurately reporting their net income from rental properties. This misreporting has resulted in a significant shortfall of around $1.3 billion, highlighting the discrepancy between the amount collected and the amount that should have been paid.

As a property owner and rental provider, it is crucial to be aware of your income tax reporting obligations and ensure compliance. Don’t fret, though. This article is here to help and remind you about your income tax reporting obligations as well as share some handy insights on ATO deductions.

What’s the situation and how can you prepare for it?

The ATO has advised that some landlords tend to leave out rental income or make mistakes when claiming property-related deductions and they want to tackle this issue head-on. This year they have pinpointed three main concerns related to landlord tax compliance. These include the misuse of investment loans for personal expenses, incorrectly categorising repair costs as capital works, and claiming expenses for personal use of the property.

Being on top of your tax game is simpler than it seems. Here are two things that you can do to help avoid issues:

  1. File Correct and Honest Tax Returns: It’s stating the obvious, but ensure you accurately report your rental income and claim deductions that you’re entitled to. Honesty is key when meeting your tax obligations.
  2. ‍Seek Professional Guidance: Don’t be afraid to reach out to a tax professional or accountant who specialises in property taxation (*us*). They can offer expert advice on which deductions you can claim and guide you through the ins and outs of rental property taxation.‍

What Can Landlords Claim?

By understanding what you can claim, you can maximise your deductions and minimise any risk of non-compliance. Here are a few things you may be able to claim:

Mortgage Interest: Ah, the sweet relief of claiming the interest you pay on your mortgage as a deduction. Just make sure you accurately apportion it if you use the property for personal purposes too.

Utilities, Insurance, and Operational Costs: If you foot the bill for these expenses, you can claim them as deductions. Just keep those receipts handy!

Property Maintenance and Repairs: Any costs incurred to keep your property in tip-top shape for tenants, such as fixing leaky pipes or giving the place a fresh coat of paint, can be claimed as deductions. That’s some good news for your wallet!

What can you do to prepare for an audit?

‍In light of the ATO’s scrutiny, it is essential for landlords to ensure that their tax returns accurately reflect their rental property income and expenses.

We don’t want you stressing over a potential audit, but it’s always wise to be prepared, just in case.

Stay organised and maintain detailed records of all income and expenses related to your rental property. This includes rental income, receipts, invoices, and documentation for all claimed deductions. A little extra effort now can save you headaches later.

If a discrepancy or error is detected during the lodgement of a tax return, the ATO temporarily halts the processing and contacts the taxpayer to request an explanation. In some cases, the ATO may conduct further investigations after the return has been processed and ask taxpayers to review and make any necessary amendments to their return.

Time to review your records system?

A property records system is a tool that allows you to keep track of all the details related to your rental property in one place. You have a couple of options.  It might be in the form of excel spreadsheets and folders on drive or cloud, or it might be a software packagehelps you maintain your records.  Either way we suggest your system covers the following areas:

  • Tenant and lease information/documentation
  • Property condition reports
  • Bond collection
  • Maintenance requests and work orders
  • Financial records such as rent payments and expenses
  • Reports and analytics

‍‍A property records system allows you to keep everything in one place and easily accessible, so you can always stay organised and on top of things.

By keeping a good system in place to manage things, understanding the deductions you can claim and seeking professional guidance when needed you’ll be well-prepared to navigate the ATO’s watchful eye. Remember, there’s no need to panic. With a little organisation and the help of Activ8, you can be prepared and stay ahead!

work from home deductions

Working-from-home Deduction Changes

by Advice

The ATO has made some changes to how you can claim work-from-home expenses.

The ATO has scrapped the ‘shortcut method’ for claiming work-from-home expenses. This method allowed taxpayers to claim 80 cents per hour worked from home and was an all-inclusive rate so no other work-from-home related expenses could be claimed on top.

You still have the option of claiming on an hourly basis – but it is much less generous than previously.

There are two methods available to claim work-from-home expenses: (1) Fixed Rate Method, and (2) Actual Cost Method.

Fixed Rate Method

The ATO has updated the fixed rate method from 52 cents to 67 cents per hour. However, the new fixed rate now covers all ongoing expenses such as phone bills, internet and utility expenses while working from home.

The only additional expenses that can be claimed on top of the hourly rate are new equipment, office furniture and cleaning (if you have a dedicated home office).

The changes don’t stop there, the ATO has also introduced stronger record-keeping for at-home expenses. From 1 July 2022 to 28 February 2023 taxpayers can provide a four-week diary representing their hours worked from home. From March 2023 onwards, the ATO will require each hour worked from home to be recorded.

Actual Cost Method

The Actual Cost Method remains unchanged and allows you to claim a deduction for the actual expenses you incur. This method takes all of the at-home expenses and then proportions them for their work-related use. These include internet, phone, electricity, computer consumables, stationery, and cleaning (if you have a dedicated home office). A detailed diary is not required – a 4-week period that represents your work use can be used. You will need to keep copies of invoices and bills.

Which rate will be best for you will depend on your individual circumstances. Generally, we find that in most cases the actual cost method gives a greater deduction. When preparing your return, we will do an analysis to ensure you get the best deduction possible.

Please reach out to Activ8 for more information on what’s required to claim home office expenses and your eligibility to maximise your return.

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Introduction Of Deduction For Skills Training & Technology Costs

by Advice

120% deduction for skills training & technology costs

This was originally announced in 2022 budget by the Morrison Government. It has been adopted by the current Government and on the 21st June 2023, the legislation to allow these measures was finally passed.

Technology Investment Boost

The Technology Investment Boost is a 120% tax deduction for expenditure incurred on business expenses and depreciating assets that support digital adoption, such as portable payment devices, cyber security systems, or subscriptions to cloud-based services. 

The boost is capped at $100,000 per income year with a maximum deduction of $20,000. 

The $20,000 bonus deduction is not paid to the business in cash but is used to offset against the assessable income. If the company is in a loss position, then the bonus deduction would increase the tax loss. The cash value to the business of the bonus deduction will depend on whether it generates a taxable profit or loss during the relevant year and the rate of tax that applies. 

Skills and Training Boost

The Skills and Training boost is a 120% tax deduction for expenditure incurred on external training courses provided to employees. This incentive will not apply to sole traders and independent contractors. 

External training courses will need to be provided to employees in Australia or online and delivered by training organisations registered in Australia. 

The training must be necessarily incurred in carrying on a business for the purpose of gaining or producing income. That is, there needs to be a nexus between the training provided and how the business produces its income. 

Note that the additional deduction relating to the 2021/22 financial year is to be claimed in the 2023 tax returns.  

If you require further information on any of these measures, please do not hesitate to contact our office on (07) 3367 3366.

Tax-Refund-3

8 Ways To Max Your Tax Refund

by Advice

The end of the financial year is now less than 3 weeks away.  It’s time to make sure your house is in order by targeting tax breaks, trimming loss-makers and invigorating wealth-creating strategies.

The following are eight strategies that can help you get the max from your tax return.

1. Get organised and claim what you are entitled to

The tax office is a big fan of paperwork to back up any claims you make.  We are seeing increased audit activity by the ATO so it is vital you have the receipts and proof to back up any claims you make in your tax return.  You don’t need to keep piles of paper receipts.  The ATO is happy with unedited scanned copies.  Just remember to save your documents for the five years that the ATO requires.

2. Work expenses

If you spent money in the process of making money, a whole range of work-related costs can be claimed on tax – everything from sunscreen for outdoor workers to the cost of laundering professional uniforms.

Transport costs are one of the most popular travel tax deductions. Generally, work-related travel in your car or on public transport is claimable with the exception of travel from home to work (and vice versa).
Other expenses you may be able to claim for are:

  • Clothing and laundry expenses of uniforms that are distinct to your job and company
  • Protective clothing and certain accessories for specific employees
  • Self-education expenses, including home office costs
  • Tools and equipment purchase and other related expenses
  • Fees of books and periodicals, as well as digital information and subscriptions.

You can only claim a deduction if they are related to your job. A course that helps you be better for your current duties can be claimed. However, one that may aid you in getting a promotion or another job cannot be claimed.

If you’re unsure, just check with us or the Tax Office website for a virtual A-Z of expenses that are tax deductible.

3. Claim your work from home expenses

In February this year, the ATO changed the way you can claim deductions for costs incurred when working from home.  Firstly, they have revised the fixed rate method and what is covered by that rate. Then they increased the compliance obligations.

With these changes, we believe most clients will be better off claiming work from home expenses based on the actual costs incurred, rather than the cents per hour method. This is because the new fixed rate of 67 cents per hour now absorbs some tax deductions that you used to claim separately.

This method involves claiming the actual work-related portion of all running expenses. To claim this method, you must have an area set aside as a dedicated home office.

Compliance obligations include keeping detailed records for all the working from home expenses being claimed, including:

  • All receipts, bills and other similar documents to show you have incurred the expenses you want to claim.
  • A record of how you have calculated the work-related and private portion of the expenses (for example, a diary or similar document kept for a representative 4-week period to show the usual pattern of work-related use of a depreciating asset such as a laptop).

If you want to use the cents per hour method, then from 1 March 2023 you need to keep a record of the actual hours you worked from home.  Estimates or the 4-week representative log book will not be accepted.

4. Make strategic use of Super (and boost your retirement savings)

It used to be a case of ‘use it or lose it’. If you couldn’t contribute the maximum annual concessional (before-tax) contribution amount to your superannuation, the opportunity was lost.

However, from the 2019/20 year, if your super balance was below $500,000 at the previous June 30, you can use “catch-up” provisions to “legitimately breach” the annual limit.  From 1 July 2018, the ‘unused’ amount of your annual cap can be carried forward for the next five financial years.  After five years, that unused amount will expire.

Given that Superfunds are generally taxed at 15%, if you are on the top tax rate, these additional contributions can save up to 32% in personal income tax.

If you want to take advantage of this but are unsure of the catch up amounts available, we can quickly get this information from the Tax Office portal.

5. Cut capital gains

If you have a capital gain this year that is going to be taxable, then consider realising capital losses to offset against the gains.

To offset a loss against a gain, both must be realised.  This means you must sell both before 30 June to reduce your tax bill.

This is a chance to re-align your investment portfolio to be in line with the portfolio objectives, but also take the opportunity to potentially clean out any poorer performers and manage capital gains and losses.

6. Trust distributions

In recent years, it seems the ATO has decided they really don’t like Trusts.  Albeit they are a legitimate vehicle for transferring and managing wealth. One area that is getting focus lately is the need to complete a trustee resolution before June 30.

Failure to do so means the trustee could be assessed on the trust’s taxable income at the highest marginal tax rate.

Activ8 will be in touch with all our clients within the next week to follow up on this issue.

7. Instant Asset Write Off

If you’re a business that is looking to purchase an asset with a value greater than $20,000, ideally do it before 30 June. You will be able to claim 100% of its cost in FY23.  Note the asset needs to be installed and ready to use before 30 June to get the deduction.  If purchased after 30 June, then these assets will be added into a small business simplified depreciation pool and depreciated at 15% in the first year and 30% each year thereafter.

8. Make donations

Tax time is when the feel-good factor of charitable giving can really kick in. Donations of $2 or more to registered charities are tax deductible.

You’ll need a receipt for large gifts but if you’ve handed some loose change to a street collector you can still claim the donation without a receipt as long as it’s less than $10. Don’t forget to include donations for any workplace giving programs you are part of.

If you want to discuss any of the initiatives referred to above, or if you need help getting your taxes ready or coming up with a plan, don’t hesitate to reach out to Joanna or myself. We’d love to chat.

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2023 Budget – What It Means For You and Small Businesses

by Advice

The 2023 Federal Budget was very underwhelming tax-wise with the primary focus being measures aimed at lowering the cost of living or improving welfare.

This budget is a first-term government setting the tone to win a second and third term.  It’s not a big spending budget and the government is banking a lot of the tax windfall it will receive over the next 4 years.  The numbers are a bit rubbery, but it is a good start to repair the budget.

There is little to no structural change to the tax system, and they have left the stage 3 tax cuts alone.  The government is doing everything it can to not break promises and to send a message about economic competence.  Short of a drastic change in economic circumstances, I think the stage 3 tax cuts are here to stay.

The Treasurer, Dr Chalmers, has indicated that more “difficult decisions” will need to be made to sustainably fix the budget, but I think they are looking to the next term of government.  Labor wants to bank some trust and goodwill with the electorate before it brings any major tax reform to the table. 

BUDGET OVERVIEW

The key measures of the Budget affecting small business and what it means for you.

1. Temporary Full Expensing is Ending

Currently, most businesses that purchase business assets can claim 100% of its price in full, in the year that it’s purchased and ready for use. This will finish on 30 June 2023.

Recommendation: If you need to purchase a business asset and have the cashflow to do so, we recommend you purchase it BEFORE 30 June 2023 to be able to claim 100% of its cost in the 2023 year.

2. Instant Asset Write Off – $20K

Replacing temporary full expensing is the Small Business Instant Asset Write-off.  Businesses with a turnover of less than $10 million, will be able to immediately deduct the full cost of eligible assets costing less than $20,000 (incl GST).  Assets need to purchased and installed before 30 June 2024.

Assets that cost more than $20,000 will be added into a small business simplified depreciation pool and depreciated at 15% in the first year and 30% each year thereafter. Remember, this is a tax deduction, and it is not $20,000 cash back to you.

3. Low and Middle Income Tax Offset (LMITO) has ended

The temporary LMITO was introduced in the 2019 Budget and then extended during the COVID-19 pandemic.  It resulted in extra tax refunds of between $675 and $1,500 (depending on your level of income) for individuals. The Government didn’t extend the LMITO, so it has ended as at 30 June 2022.

Lower tax refund: Individuals who received an extra tax refund of up to $1,500 in 2022 will not receive it again this year in 2023.

4. Small business failure to lodge penalty amnesty

An amnesty has been announced for small businesses with a turnover of less than $10m, and have fallen behind on their tax returns.

A small business will not be charged failure-to-lodge penalties for outstanding tax lodgements that are lodged between 1 June 2023 and 31 December 2023 that were originally due between 1 December 2019 to 29 February 2022.

You’ve got 7 months to sort this one out and avoid some fines if you need to catch up.  Remember to reach out if you need a hand!

5. Super Stuff

The budget confirmed changes that were previously announced.  From July 2026 employers will have to pay super at the same time as wages, rather than quarterly.  This measure is designed to increase compliance with the legislation.

It won’t begin for 3 years but you will need to factor this into your future cashflow planning.

At the other end of the scale, very high superannuation balances will attract a higher rate of tax from 1 July 2025. Earnings on balances exceeding $3 million will pay tax on earnings at a rate of 30 per cent, 15% higher than the current rate of 15%. Earnings on balances below $3 million will continue to be taxed at the concessional rate of 15 per cent. Defined benefit interests will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests to ensure commensurate treatment.

If you have a balance of more than $3 million in your Superfund you should do a complete review of your arrangements to determine the best tax strategies going forward.

6. Family Support

From 1 July this year, Parental Leave Pay and Dad and Partner Pay will combine into a single 20-week payment. A new family income test of $350,000 per annum will see nearly 3,000 additional parents become eligible for the entitlement each year. The Government has also committed to increase Paid Parental Leave to 26 weeks by 2026.

7. Tax incentive for energy efficiency

The Small Business Energy Incentive provides an additional deduction of 20% of the cost of eligible depreciating assets that support electrification and more efficient use of energy.

Up to $100,000 of total expenditure will be eligible, with a maximum bonus deduction of $20,000.

While the full detail of what qualifies for the incentive is not yet available, it is expected to apply to a range of depreciating assets and upgrades to existing assets such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

Some exclusions will apply including electric vehicles, renewable electricity generation assets, capital works, and assets that are not connected to the electricity grid and use fossil fuels.

8. Plan for higher PAYG instalments in 2024

Normally, PAYG instalments toward next year’s tax are adjusted using a GDP adjustment or uplift.

In 2022-23, the Government reduced this uplift factor to 2% instead of the 10% rate that would have applied. And now for 2023-24, the Government has set the uplift factor to 6% instead of the 12% rate that would have applied.

If you continue to make good business profits with tax to pay, you will need to budget for slightly higher PAYG instalments. 

OTHER STUFF FOR SMALL BUSINESS 

A few other “watch this space” announcements for supporting small businesses:

  • $23.4 million Investment in Cyber Security
  • $392.4 million Investment in an Industry Growth Program
  • $18.1 million Investment in Buy Australia Plan

These types of investments tend to filter down through state government grants so keep an eye out.

These are the main measures affecting small businesses from this budget.  Remember, these are subject to the measures passing through Parliament.  If you require further information on any of these announced measures, please do not hesitate to contact our office on (07) 3367 3366.

Tax tips

8 Business Tax Tips

by Advice

The best way to save tax in business is to consider and apply strategies prior to 30 June each year. After year end, the options available to improve your tax position are severely restricted. Activ8 are business tax specialists. In this article we share some of our best tax tips.

Tip 1. Maximise Your Super Contributions

Superannuation is a fantastic vehicle for tax effective investments. We recommend that every year you maximise the amounts you put into super. The maximum you can claim each year changes and you need to take into account contributions made by your employer, including your own business, and personal contributions. Remember to speak to your financial planner about how super fits into your personal financial plan. Our advice is purely focused on the tax benefits alone.

Tip 2. Take Advantage of the Instant Asset Write Off

The temporary full expensing of assets purchased for business use has been extended to 30 June 2023. This means that businesses can get an immediate tax deduction for the full amount of the asset’s cost in the year it is purchased.

Therefore if you are planning some equipment purchases, get them completed before 30 June to maximise the deduction in this financial year.

Note – cars are capped to a maximum claim of $60,733 for the 2022 year.

Tip 3. Do a Stocktake at 30 June

Does your business have trading stock? Do a stocktake at 30 June. This not only helps to get accurate profit figures, but you are eligible for a tax deduction for obsolete or worthless items still on the shelf.

Tip 4. Write Off Your Bad Debts

Subject to how you report income on your BAS, you have likely paid tax and GST on income you have invoiced but not yet collected. If you have deemed the debt to be uncollectible, you are entitled to a tax deduction as well as recouping the GST paid to the ATO.

Tip 5. Pay Your Employees’ Super on Time

If you pay super late, you will miss out on the tax deduction. In addition the ATO will impose interest and penalties for late super. We recommend that super is paid each pay cycle so you’ll never be late and you don’t get a big lump sum at the end of the quarter.

Another tip for super at year-end is to pay any June quarter before 30 June to get the tax deduction in the current year. Note – allow 7-10 days processing time to ensure the superfund processes the payment before 30 June.

Tip 6. Keep a Log Book For Your Business Cars

A compliant log book is essential to maximise your motor vehicle claim. Whilst they can be cumbersome to keep a log book, they are only required for 12 weeks and it remains valid for 5 years.

Tip 7. Defer Income to Next Year

If it makes sense to do so, deferring income until after 30 June means you pay tax on it next year, not this year. You can do this by holding off invoicing until 1 July, where appropriate.

Tip 8. Prepay Expenses

Cashflow permitting, you can prepay expenses like interest and rent up to 12 months in advance to boost the tax benefit in this financial year. This does not apply to stock purchases, but basically any other business expense can be paid before 30 June to allow the tax deduction in this year. This is particularly good where you have had a good year and have a bigger than usual impending tax bill.

We hope you find these tips insightful. There are plenty of other tax strategies you can put in place to minimise the tax you pay. It’s never too late to start taking advantage of tax benefits.

If you need any guidance or advice in relation to these tips, contact Activ8 Accountants & Advisors and we can guide you through them. Call us on 07 3367 3366.

 

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Taxation and Superannuation Updates for New Financial Year

by Advice

As the new financial year commences, we’d like to provide some timely reminders, key dates and information ahead of finalising your tax affairs for 2020/21, and some things you need to be aware of over the next 12 months.

Key Dates for July

14 July – Single Touch Payroll finalised

21 July – Monthly BAS return for June due.

28 July – Make quarter 4 super guarantee contributions to funds by this date (if not paid earlier)

 

Three End Of Financial Year Payroll Tasks

1. Single Touch Payroll Finalisation

Due date is 14th July 2021

2. All Employers (including those with closely held employees) need to be using Single Touch Payroll (STP) Compliant software from 1 July 2021

​​For example if you operate your business through a company or trust structure which employs you, you will need to adopt STP compliant software into your business.  Most accounting software providers have a solution available, speak to your bookkeeper or accountant if you aren’t sure.

3. Reminder that the Superannuation Guarantee (SG) Rate increases from 9.5% to 10% from 1 July.  Look out for any communications from your payroll software provider

Super changes for 2021/22

 

  • SGC Rate: As mentioned above, the SGC rate increases to 10% for all wages paid from 1 July.
  • The concessional contributions cap has now increased to $27,500, up from $25,000.
  • The non-concessional contributions cap is now $110,000, up from $100,000.

 

Claiming Work-Related Deductions

When you do your tax do you just claim “what you claimed last year”?

Technically that is not allowed. You need to be able to substantiate your deductions and circumstances may change so you need to be considering that.

For example, if you are working from home more, then your travel and laundry expenses will be substantially different.

The ATO is data matching everything this year and checking if people are claiming the same as last year.

As the pandemic forced swathes of the workforce to work from home, work-related expenses are expected to spike for the 2021 income year. However, the ATO also expects some expenses, like travel, will decrease compared to prior years.  In general, the ATO expects to see a downward trend in expense claims related to clothing & laundry, self-education, car and travel.

2021 budget

2021 Budget Overview

by Advice

The 2021 Federal Budget has been delivered, with the budget designed to keep the country out of recession through prolonged spending, with the goal to drive down unemployment.

From a pure tax perspective, it was a fairly uneventful budget.

There are a few key changes, however, and these are summarised below.

Extension of the Instant Asset Write-Off: An extension of this program out to June 2023 to allow businesses to immediately depreciate eligible assets, with no cap on the value of these assets. This not only directly benefits small businesses that invest but some of these assets will be purchased from or serviced by other small businesses.

Low & Middle Income Earner Tax Offsets Extended Another 12 Months:  The low and middle-income tax offset, which was due to end on June 30, will be extended for another 12 months. The offset is worth up to $1080 as a refund for about 10 million workers earning between $48,000 and $90,000 when they file their tax returns.

Loss Carry Back: Extended to 30 June 2023.  Losses incurred during the 2020 to 2023 years can be carried back to offset profits as far back as the 2019 year as a refundable tax offset.

Changes To Minimum Super Payments:  From 1 July 2022, the minimum threshold of $450 ordinary earnings before superannuation is payable will be removed. This ensures casual and part time workers are not penalised with less superannuation savings.

Super Contributions Limit for over 60’s: The access age to the “super downsizing scheme” will be reduced from 65 to 60 from 1 July 2022, allowing more people to boost their superannuation with the proceeds of the sale of their home. Contributions of up to $300,000 are allowed, but the home must have been owned for at least 10 years and the money must be paid into super within 90 days of receiving cash from the sale.

Superannuation – Removal of The Work Test: Work test rules for older Australians – which restrict contributions to super unless you are working a certain number of hours – will be scrapped.  This change means people who are between 67 and 74 who may have already retired, are doing volunteer work or who have more flexible work arrangements can continue to make voluntary contributions or salary sacrifice.

Self-Education Deductions – Removal Of $250 Adjustment: From 1 July 2022 the exclusion for the first $250 of deductions for self-education expenses will be removed from the first income year after Royal Assent.

Changes to Residency Rules: From 1 July 2022 they will replace the individual tax residency rules with new primary and secondary tests to determine residency.

– a primary ‘bright line’ test — under which a person who is physically present in Australia for 183 days or more in an income year will be an Australian resident for tax purposes;

– secondary tests depending on a combination of physical presence and measurable, objective criteria — for individuals who do not meet the primary test.

Tax Breaks for Aussie Patents: From 1 July 2022, companies that develop patents in Australia will receive tax reductions under an initiative to promote the manufacturing sector and innovations in the medical and biotech sectors.

Dubbed the “patent box”, the initiative will see corporate profits taxed at a concessional rate of 17 percent if the patents are developed in Australia. The scheme is expected to take effect on July 1.

Please contact Activ8 Accountants and Advisors if you have any questions about how the budget may affect you or your business.

Tax cut

What Should You Do With Your Tax Cut?

by Advice

One of the key pillars of this year’s federal budget was the future and backdated tax cuts.  The “stage two” tax cuts originally set down for the 2022-23 year have been brought forward and backdated to July 2020.

The measures are expected to see lower and middle-income earners receive tax relief of up to $2745 for singles, and up to $5490 for dual-income families – compared to 2017/18.  The new tax scales have been released by the ATO now so all employees should be seeing an increase in their take-home pay.  You will get the kicker for the backdated portion when you lodge your 2021 tax returns.

The government wants us to spend these tax cuts to drive economic activity.  This argument that increased consumer spending will stimulate the economy is debatable as all spending isn’t equal.  Spending money on electronics made in China doesn’t benefit our economy as much as eating out at local restaurants.

On top of this Covid-19 has changed the rules of the game.  We have seen a fall in private consumption and people are still anxious about outbreaks and shutdowns.  In this environment, people will be more likely to save, not spend.

Here are my thoughts on what you should do with your tax cut.

Pay off your debt

If you’ve got debt, pay it off.  We have very high household debt-to-income ratios in Australia.  Each person will have different priorities at times like these, but if financial security is at the front of your mind then you should be reducing non-discretionary spending and non-deductible debt.

Paying off high interest finance like credit cards and car loans as quickly as you can is about the most effective investment you can make.

Invest

If you don’t have non-deductible debt, then think about your goals and look to invest the tax cuts.  Think about your goals and choose investments that are appropriate for the length of time to invest.

Younger people are particularly well served by investing early and often with compound interest on your side.

Now might be the time to sit down with a financial planner to start mapping out the years ahead.  We work with a few planners in this space so let us know if you’d like some contact details.

Don’t spend it before you get it

Don’t second guess how much your tax refund is going to be and don’t spend it before you’ve got it.  A lot gets taken into account in calculating the tax at year end and you might get caught out.

Also, avoid the Buy Now Pay Later offers such as AfterPay.  These lenders are essentially unregulated and borrowers are getting caught out.  The ASIC report this week about the schemes highlights that as many as 20% of borrowers are getting into trouble with these credit products.  Past financial results have shown that the lenders make between 10% & 20% of their income from late fees. So beware, don’t overcommit and don’t spend more than you earn.

 

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Taxation of Coronavirus Payments In Your Tax Return

by Advice

Over the past 9 months, there have been numerous Covid-19 government support payments for business and individuals. A question we are often asked is how these are treated for tax purposes.

JobKeeper payments

JobKeeper payments received by individuals are considered taxable income. Your employer will report them to the ATO along with the tax they withheld. These payments will be part of your Payment Summary which will be available through MyGov.  They may appear separately or as part of your salary and wage income. If you are a sole trader you declare the JobKeeper payments as income.

Businesses that received JobKeeper payments to help make up for a fall in turnover, will need to disclose these payments as part of the assessable income of the business for the financial year.  It will be offset by the JobKeeper payments made to staff.

JobSeeker payments and the $550 Coronavirus supplement

Your JobSeeker payment and the $550 Coronavirus supplement are both taxable income and are included in your tax return. The ATO should automatically populate this information for you under the ‘government payments and allowances’ section in your tax return. 

The $750 Economic Support Payment

This payment was made to Australians on lower incomes who were receiving some kind of assistance from Centrelink.  It is exempt from tax and does not count as income. 

Business Cash Flow Boost payments

The federal government cash flow boosts were delivered as credits in the activity statement system to small and medium businesses who employed staff.  They are tax-free payments. You do not need to report or include them in your tax return.

State Government Grants

A government payment to assist a business to continue operating is included in assessable income. This will include assistance provided as a one-off lump sum or a series of payments.  These include:

  • Queensland COVID-19 adaption grant
  • New South Wales Government Small Business COVID-19 Support Grant
  • South Australian Government $10,000 Emergency Cash Grants for Small Businesses
  • South Australian Government Job Accelerator Grant Scheme
  • Victorian Government Business Support Fund
  • Payments under the Northern Territory Government Small Business Survival Fund
  • Northern Territory Government Business Improvement Grant
  • Western Australian Government Small Business grant scheme

Electricity rebates

Some states and territories are offering households and some businesses automatic electricity rebates. These rebates are not included in assessable income. For a business, the rebate will reduce the deduction the business can claim for electricity.

Early release of superannuation

If you accessed part of your super under the COVID-19 early release of super payment, you won’t be required to pay any tax on the payment so you don’t need to disclose it in your tax return.

Still have questions? Feel free to reach out to the team at Activ8 Accountants & Advisors who will be happy to talk further.