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ATO Turns Its Attention To Crypto

The meteoric rise of cryptocurrency (crypto) and NFTs (non-fungible tokens) has raised many eyebrows and has now also caught the attention of the ATO. Whether you’re trading crypto or NFTs as an individual or business, capital gains tax (CGT) applies to any gains you make regardless of whether the gain is in foreign currency or Australian dollars.

 

Most people are now familiar with cryptocurrency, which is a type of digital money created from code and usually takes the form of tokens or coins. The most well-known of which include Bitcoin, Ethereum, and Dogecoin. Non-fungible tokens are a comparatively more recent development which basically consists of a unit of data stored on a ledger to certify that a digital asset is unique. This has mostly been applied to artwork but can also include photos, videos and other types of digital files.

 

Based on its data holdings, the ATO will be writing to around 100,000 taxpayers with crypto assets explaining their tax obligations and urging them to review their previously lodged returns. It will also prompt another 300,000 taxpayers as they lodge their 2021 tax return to report their crypto capital gains or losses.

 

Individuals or businesses that dispose of crypto must work out if they made a capital gain or loss and report the resulting gain or loss in their tax return. Disposal of crypto can include exchange of one cryptocurrency for another cryptocurrency, trading, selling or gifting cryptocurrency, converting cryptocurrency to a government issued currency (ie Australian dollars).

 

Transfers of cryptocurrency from one wallet to another while maintaining ownership is not considered to be a disposal, however, if your crypto holding reduces during this transfer to cover a transaction fee, this fee is a disposal and has CGT consequences. In addition, if you acquire a small amount of crypto and use it within a short time to make personal purchases, the crypto may be considered to be a personal use asset and not subject to CGT.

 

In conjunction with contacting taxpayers, the ATO is also conducting a data-matching program which will consist of account identification and transaction data from cryptocurrency designated services providers from the 2021-2023 financial years. These details include the usual client identification information such as name, address, date or birth, phone number and email, but interestingly, now also includes social media account details. Transaction details will also be obtained which includes bank account details, wallet addresses, transaction dates/time/type, deposits, withdrawals, transaction quantities, and coin type.

 

It is estimated that records relating to approximately 400,000 to 600,000 individuals will be obtained each financial year under the program.

 

According to the ATO, while crypto appears to operate in an anonymous digital world, it closely tracks where crypto interacts with the real world through data from banks, financial institutions as well as online cryptocurrency exchanges to trace the money back to taxpayers. It will then match the data obtained from cryptocurrency designated service providers to either individual or business tax returns to ensure that the right amount of tax is being paid.

 

Need help to work out whether you need to pay CGT?

 

If you or your business has been dabbling in crypto and need help to work out whether those transactions are subject to CGT, we can help. The ATO is keeping a close eye on this relatively new financial area and it pays to get it right. Contact us today for expert help and advice.

 

Financial Help For Relocating Job Seekers

Job seekers can now take advantage of the government’s relocation assistance of up to $9,000 when they relocate to take up an on-going work, including an apprenticeship, provided the position (both work and apprenticeship) is for more than 20 hours a week with a duration of more than 6 months. The scheme commenced 1 May 2021 and is designed to help job seekers with the cost of relocating to take up vacant job positions.

 

Job seekers who are participating in employment service programs such as jobactive, Disability Employment Services, ParentsNext, Transition to Work, or Community Development Programs may be immediately eligible for help with their moving costs.

 

Where you relocate to take up ongoing work, the new location must be within Australia, be at least 90 minutes away from where you currently live (based on your normal mode of transport), and not be within the same capital city. Those individuals that relocate to a regional area may be eligible for up to $6,000 with an extra $3,000 available if a dependent is also relocating. For those relocating to another capital city, $3,000 of relocation assistance may be available with an extra $3,000 if relocating with a dependent.

 

However, relocation assistance for capital cities are only available if the destination city has a lower unemployment rate than the capital city you’re relocating from. For example, according to the latest unemployment rate published by Australian Bureau of Statistics, the NSW unemployment rate is 5.4% and Victoria is 6.1%. So, it is likely that an individual moving from Melbourne to Sydney would get the relocation assistance although they would not receive the assistance if they were moving from Sydney to Melbourne.

 

The relocation assistance received can be used for a variety of costs including rent, travel costs, and some employment-related expenses. The assistance can be received either as a reimbursement or the employment services provider can make payments directly to the supplier. Individuals experiencing hardship may also be able to obtain $2,000 up front to help with the cost of relocating. In addition, only one member of a couple may apply for relocation assistance.

 

To apply for the relocation assistance, individuals are encouraged to contact either their local employment services provider or the employment services information line. Evidence that you’ve received an accepted an offer for an eligible job in an eligible location will be required. Furthermore, you must also sign a relocation assistance agreement with an employment services provider and make available any quotes, invoices, and receipts of relocation costs.

 

If after accepting relocation assistance, you leave your job without valid reason, or you don’t commence employment or relocate, penalties may apply. However, in instances where you lose the job through no fault of your own, for example, a redundancy or a business closure, penalties would not apply.

 

Want to apply?

 

If you’re relocating by yourself or with your family for a job, we can help you work out whether you’re eligible for this assistance to reduce the up front costs associated with the move. Remember this assistance is also available for individuals on apprenticeships. Contact us today for expert help and advice.

 

Tax Time 2019: Your Payment Summary Is Changing

Ready for tax time 2019? This year there’ll be some changes to how many employees access their tax information from their employer. The good news is this is part of a big switch to electronic reporting that will eventually make tax time easier. But as with all new systems, there are some new details to get your head around.

 

If you’re an employee, there are a few things you need to know this tax time about the ATO’s new “Single Touch Payroll” (STP) system. This system requires employers to report information like salaries, wages, allowances, PAYG withholding and superannuation contributions to the ATO electronically every time they pay their employees.

 

You’ve probably still been receiving payslips each cycle, but at tax time you’ll generally no longer receive a payment summary (sometimes known as a “group certificate”) from your employer.

 

Instead, you’ll be able to access a summary through the ATO’s online services. This will now be known as an “income statement”.

Because STP is new, we’re still in a transitional period. Here’s what you need to know:

-For businesses with 20 or more employees, STP became compulsory last year on 1 July 2018.

-For businesses with under 20 employees, STP applies from 1 July 2019, but these businesses still have a few months to get their systems working.

This means that for tax time 2019, some employers will still give their staff a payment summary while others will not because their reporting has already shifted online to the ATO. And if you have two employers, it’s possible you might receive a payment summary from one this year but not from the other.

 

How does it all work online?

Taxpayers with STP-compliant employers will access their new income statements through the “myGov” online portal. This is a central government portal where you can also access services like Centrelink, Medicare and others. To use this online service to view your income statement, you first need to have a myGov account, and then link your account up to ATO services.

 

Once your employer is using STP and your myGov account is linked to the ATO, you can access your information as follows:

-Throughout the income year, you can log on to check your year-to-date income, tax and superannuation information at any time. Each time your employer pays you, this data will be updated (although it may take a few days for updated amounts to appear).

-After the end of the income year, the ATO will send a message to your myGov inbox to let you know your annual income statement is finalised and ready.

 

If you log on in July to access your income statement, you should wait until your employer has marked your statement as “tax ready” before you lodge your tax return. Employers have until 31 July to do this. The data from your income statement will be pre-filled into the “myTax” online tax return system even if your income statement isn’t “tax ready” yet, so be careful when lodging.

 

It’s not compulsory to have a myGov account and you don’t need one to lodge your tax return. Your tax agent can access your income statement for you. However, not having a myGov account means you can’t check your information online yourself.

 

The ATO has recently reminded taxpayers that your tax agent can also view communications the ATO has sent you from within their own tax agent portal, so they don’t need to access your personal myGov account. Your tax agent can also tell whether your employer is using STP.

 

Let us do the hard work

Not sure whether your employer is using STP, or just want to keep tax time as stress-free as possible? Talk to us for expert assistance and advice this tax time for all of your lodgment needs.

Working And Studying Part-Time: Have You Considered All Your Deductions?

 

Will you need to buy textbooks for your work-related study, or perhaps invest in a new computer? You can claim deductions for these expenses, and others, if your course of study has the necessary connection to your current employment. Find out what rules apply when claiming for books, equipment, accommodation and travel, and ensure you’re claiming everything you’re entitled to.

 

Undertaking further study is a great way to enhance your skills on the job, but on top of tuition fees you may be facing a range of additional costs. In the previous instalment of our series on work-related study expenses, we explained when you can deduct your course fees. In this instalment, we look at other expenses like textbooks, computers and travel.

An important rule to remember is that in order to deduct any of the expenses discussed in this article, there must be a sufficient connection between your course of study and your current income-earning activities. This generally means the course must either maintain or improve the skills or knowledge you need for your current employment or result in (or be likely to result in) an increase in your income from your current employment.

 

Books and equipment

Textbooks are notoriously expensive! The good news is that you can generally deduct the cost of textbooks, as well as stationery and photocopying expenses, in the year of purchase.

Computers and other equipment are a little more complicated. If you buy a computer, calculator, technical instrument or tool or furniture (eg a desk or filing cabinet) to help you complete your studies, you may claim the interest expenses on any loan you’ve taken out to fund the purchase, and you may also claim equipment repair costs as they arise. However, you can’t initially deduct the purchase price. Instead, these are depreciating assets for which you can claim a deduction for decline in value. Your tax adviser can help you determine how the depreciation rules apply to your purchases.

If you use equipment such as a computer for both study and private purposes, you can only claim for the study-related proportion of your use. For example, if you use the computer for study purposes 60% of the time, you can deduct 60% of the interest expenses, repair costs and decline in value.

 

Meals, accommodation and travel

Generally, meals and accommodation are considered private expenses and therefore aren’t deductible. However, you can deduct these expenses if your study requires you to temporarilysleep away from home for at least one night. You can also claim your travel expenses in these circumstances.

 

What about day-to-day travel? You can usually deduct your costs for travel between home and the place of education (and back again) and between your workplace and the place of education (and back again).

 

 

However, if you’re making a double-leg journey, your deductions are restricted. If you’re travelling from home to your place of education and then on to work, the second leg of that journey is not claimable. (Similarly, when travelling from work to your place of education and then home, the second leg is not claimable.)

 

For public transport travel, you can claim the relevant fares you paid. For car travel, you can choose between the “cents per kilometre” method and the “logbook” method. Your tax adviser can help you determine which method is more appropriate for your situation. If you’re claiming car expenses for both study-related travel and ordinary work-related travel, you’ll need to account for these separately in your tax return.

 

In many cases, taxpayers are required to reduce their total claim for work-related education expenses by $250. This is a complex calculation that depends on what other education expenses you incur in the financial year. Your tax adviser can assist with performing this calculation.

 

Maximise your return

Work-related study deductions like depreciating assets and car travel can be tricky. Take the stress out of your claim and talk to us for expert assistance. We’ll help you substantiate your deductions and make sure you’re claiming everything you’re entitled to.

Whistle While You Work

 

Have you ever wanted to report financial or corporate misconduct, but been fearful of blowing the whistle? Currently, there is no whistleblower regime within Australia’s tax laws. To remedy this situation the Government has recently unveiled draft legislation with a view to create a single whistleblower protection regime.

 

To remove the barriers to whistleblowing, the Bill under consideration seeks to widen what constitutes an “eligible” whistleblower (ie, who can be a whistleblower) and offers civil compensation for whistleblowers.

 

Minister for Revenue and Financial Services Kelly O’Dwyer said “Breaking ranks and reporting wrongdoing can be a harrowing experience, so it is important people know that they will have access to redress if they are victimised as a result of blowing the whistle.”

 

What is proposed?

Designed to cover the corporate, financial and credit sectors and to protect those who expose tax misconduct, the proposed reforms include:

 

-expanding the protections to a broader class of people, set to include former officers, employees, contractors and suppliers as well as associates and family members of such individuals;

-expanding the types of disclosures that will be protected under the framework;

-allowing disclosures to parliamentarians and the media in certain circumstances, providing certain pre-conditions are satisfied;

-imposing new stringent obligations to maintain the confidentiality of a whistleblower’s identity;

-making it significantly easier for a whistleblower to bring a claim for compensation where he or she has been victimised;

-creating a new civil penalty offence so that law enforcement agencies will be able to take action against companies where the civil standard of proof can be met; and

-requiring all large companies to have a whistleblower policy in place, with penalties for failing to do so.

 

To be protected as a whistleblower in relation to an entity, you must be eligible and the disclosure must be made to:

 

-the ATO and as a discloser you must consider that your information will assist the ATO in performing its duties; or

-an eligible recipient (which includes the auditor of an entity and a registered tax agent (who provides tax agent services to the entity)) and as the discloser you have reasonable grounds to suspect that your information indicates misconduct, or an improper state of affairs or circumstances, in relation to the tax affairs of an entity or an associate of an entity.

 

Protections provided to any eligible whistleblower include:

-immunity from civil or criminal proceedings for making a disclosure;
-protection against an action for breach of contract (including protection against termination of employment);
-protection against victimisation; and
-protection against disclosure of the whistleblower’s identity.

It will become mandatory for public companies and large propriety companies to have a procedure for whistleblowing and those who fail to do so will face a penalty.

 

Do the measures go far enough?

There has been criticism that the new proposed measures do not go far enough. Again, in response to this the Government has formed an Expert Advisory Panel to ensure new measures answer some of the recommendations made by a recent Parliamentary Joint Committee on Corporations and Financial Services into Whistleblower Protections in the corporate, public and not-for-profit sectors (PJC Report). Advice from the Expert Panel and feedback from consultation will be considered before finalising the legislation for introduction to Parliament in the last sitting week of this year.

The Government will respond to the parliamentary inquiry’s recommendations to create a reward system or bounty for whistleblowers and a whistleblower protection authority.

 

What is the timing?

The proposed date of effect will commence on the day the Bill receive Royal Assent and would apply to whistleblower disclosures made on or after 1 July 2018, including disclosures about events before this date. To allow sufficient time for public companies and large proprietary companies to comply with the requirement to have a whistleblowing policy, those amendments will apply on and after 1 January 2019, or not later than six months after a proprietary company first becomes a large proprietary company.

 

Next steps

We will keep you updated on this area. Do you currently have a whistleblowing procedure and is this promoted openly within your organisation? Given the coming changes, now might be a good time to start thinking about how to put this in place. If you own a company, you will need to keep abreast of the coming reforms. If you have something to report you can start by talking to us as your tax agent.

Alternative Dispute Resolution Process

 

Alternative dispute resolution (ADR) is not only used to resolve substantive disputes, and can be used to clarify or limit issues, and remove barriers created by relationship issues between you and the ATO. Usually, if your dispute is not very complex, in-house facilitation may be used. More complex issues will usually be outsourced to an external practitioner. Working out if the ADR process is right for you can save you time, money and heartache in any dispute or potential dispute.

 

If you’re involved in a dispute with the ATO, going straight to the Court or Tribunals may not be the most time or cost-effective way to proceed. As a taxpayer, you can access the alternative dispute resolution (ADR) process in any dispute with the ATO, which used appropriately may be the most cost-effective and efficient way to resolve disputes. Basically, it involves using an impartial person to help resolve the dispute or at least narrow the issues between the parties.

 

Broadly, the ADR processes encompass 4 branches, facilitative, advisory, determinative, and blended dispute resolution.

 

Facilitative

In this branch, independent ADR practitioners assists the parties to identify the issues, formulate solutions, and consider any alternatives with the goal of reaching an agreement either about the entire dispute or some issues within the dispute. Examples of the facilitative processes include:

*Mediation – an external practitioner is engaged to facilitate the process. The parties usually split the costs involved where mediation is voluntarily entered into. Note that mediators do not normally give advice, unless the parties have requested an advisory/evaluative mediation or conciliation.

 

*In-house facilitation – a trained independent ATO officer facilitates the process. There are no costs involved in the process. However, the facilitator will not establish facts, give advice, decide on who is “right or wrong”. The facilitator’s function is to guide the parties through the process and assist them to ensure where are open lines of communication and that messages are correctly received.
Advisory

 

This process may also be referred to a neutral evaluation (or early neutral evaluation) and involves the parties presenting their arguments to an independent practitioner who provides advice on some or all of the facts of the dispute, the law, and possible or beneficial outcomes.

 

In tax and superannuation disputes, the practitioner will usually have substantial experience in tax law so they can give an insight into a decision a Court or Tribunal may make if the dispute proceeds to litigation. Once the practitioner gives the advice, it is up to each party whether they accept the advice and how they will use that information. For example, if both parties hear from the independent practitioner that they will not be completely successful in their case before the Tribunal or Court, they may decide to enter into a negotiated agreement to resolve the dispute rather than going through the costly legal proceedings.

 

Determinative

In this process, an independent practitioner evaluates the dispute and makes a determination, an example of this includes arbitration. However, the ATO notes that determinative processes are not generally appropriate for ATO disputes as it can incur similar costs and delays as litigation, but lack the openness and transparency of Court of Tribunal decisions.

 

Blended dispute resolution

This is where an independent practitioner plays multiple roles such as conciliation and conferencing, and may also facilitate discussions and provide advice on the merits of the dispute. The facilitator will usually have qualifications in the area of the dispute. This process is usually used by the Administrative Appeals Tribunal in tax and superannuation disputes in the early stages of the proceedings.

 

I have a dispute, what should I do?

Certainly, in any dispute or potential dispute emotions will be running high, and rash decisions may be made; but keep a cool head to work out which option best suits your circumstances will save you lots of time, money, and heartache. If you’re not sure if the ADR process is right for you, we can help you work out your options.

Catching Up On Superannuation Contributions

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The government’s new measure to allow those with less than $500,000 in superannuation to “catch up” on missed superannuation contributions is a great opportunity for anyone who takes time out of work or otherwise has “lumpy” income that means they have a varying capacity to make contributions from year to year. Individuals who want to fully take advantage of this strategy by making contributions up to their concessional cap plus additional catch-up amounts may need to consider strategies for how to fund those catch-up contributions.

 

Individuals with a total superannuation balance (TSB) below $500,000 are now able to “carry forward” their unused concessional contributions (CC) cap space to future years in order to catch up on contributions later when they have the capacity to do so. Usually, an individual’s CCs are capped at $25,000 per financial year, and exceeding the cap will generally attract an excess contributions tax penalty. CCs include:

 

-compulsory superannuation guarantee (SG) contributions;

 

-additional salary-sacrifice contributions made by your employer; and

 

-personal contributions you make yourself from your after-tax income for which you claim a deduction. Anyone under the age of 75 is now entitled to claim a deduction for personal contributions.

 

The new “catch-up” scheme allows eligible individuals to carry forward unused CC cap amounts on a rolling basis over five years. This means that if you do not use up all of your cap in one financial year, the unused amount can be carried forward and utilised in a future year for up to five years, allowing you to contribute more than the annual cap without penalty.

 

Unused cap space that has not been used after five years will expire.

The 2018–2019 financial year is the first year in which individuals can accumulate and carry forward unused cap space, which means the 2019–2020 financial year will be the first year in which individuals can start to make additional catch-up contributions. To be eligible to make a catch-up contribution (ie above the usual annual CC cap), the person must have had a TSB below $500,000 just before the start of the financial year in which they wish to make the contribution (ie as at 30 June of the previous financial year).

 

How might this work in practice?

To utilise unused cap space from earlier years, an individual must have the capacity to fund the catch-up contribution. Some ways in which a person with prior unused cap space might be able to contribute more than $25,000 in a financial year include:

 

-Making additional salary-sacrifice contributions, particularly for higher income earners who have not yet accumulated $500,000 in superannuation. Once someone reaches annual earnings of $216,120 per annum (which yields around $20,531 p.a. in compulsory SG contributions), their employer is not required to make further SG contributions. However, some workers, including many who earn well under $216,000 p.a., choose to salary-sacrifice additional amounts all the way up to their CC cap of $25,000. Using any unused cap space from earlier years may be attractive to those who want to heavily salary-sacrifice beyond the usual cap.

 

-Contributing an inheritance or windfall, or some other source of surplus funds.

 

-Contributing proceeds from the sale of an asset. It is important to remember, however, that selling an asset may have immediate tax consequences, and selling the family home in particular could affect the person’s entitlement to the Age Pension.

 

Anyone considering these strategies will need to ensure the contributions make sense for their particular circumstances from a tax and financial viewpoint. Individuals aged 65 or over will also need to meet the work test in order to make voluntary CCs (subject to an exception for certain eligible recent retirees).

 

 

Start thinking ahead now

If you have fluctuating income and you would like to explore the possibility of utilising unused CC cap space in future years, talk to us today. Catch-up contributions can form part of an overall contributions strategy designed to boost your retirement savings in a tax-effective manner.

Garnishee Orders May Bring Home The Bacon

A garnish is an enhancer, something to dress up a plate – think of a sprig of parsley. A garnishee is something entirely different, although it can enhance an otherwise dire situation for a creditor and bring home the bacon. It’s a third party who is ordered by the court to release money to remedy a personal debt owed to the creditor by the debtor. This could be the debtor’s bank, their employer or their own creditor.

 

Issuing a garnishee order is a cheap and easy way to claw back some of your debt, but there are a few matters to consider first.

 

Bypass your debtor and go straight to the source of their funds

Once the court has given you a judgment against your judgment debtor, and they have failed to satisfy the judgment, you can apply to the court for a garnishee order. This allows you to bypass the recalcitrant debtor and it sets up a relationship in the form of a triangle between you as creditor, the debtor and the third party.

 

This third-party garnishee acts as a kind of proxy for the debtor and the order will require them to pay the debt to you in a lump sum or in instalments.

 

A garnishee order can be directed straight to the debtor’s bank or their employer. In the latter case, you will be able to access the debtor’s pay packet before they do. You do not have to tell the debtor you have applied for a garnishee order and they may only find out when they see their bank statement or pay slip. However, the local and district courts instruct that the amounts claimed in total under the garnishee orders must not reduce the judgment debtor’s net weekly wage or salary received to less than $500.60.

 

This is known as the weekly compensation amount and is adjusted in April and October each year. When issuing a garnishee order, it must include an instruction to the garnishee about the amount that a judgment debtor is entitled to keep.

 

Garnishee orders can also be made against those who owe money to the debtor, for example a real estate agent who is collecting the rent from the debtor’s tenanted property.

 

Benefits galore of a garnishee order

One of the benefits of a garnishee order is that there is no filing fee, although a service fee may be payable. There is also no extensive research on the debtor required before the order is issued, the debtor’s name may be enough. And if the order fails to recover all or some of the money, the order can be reissued on the same garnishee several times.

There is also little the garnishee can do to stop the order unless they apply to the court or they repay the debt.

 

Guidance on garnishing

If you have received a judgment and have an outstanding debt you are trying to recover from your judgment debtor, we can help take the lead on it for you and take you straight to the debtor’s funds.

 

 

Corporate Tax Rates: Recent Changes Give Certainty

 

There’s finally some certainty about the corporate tax rate(s). Legislation has recently passed Parliament and the fate of other proposed changes has also been finalised. The law is settled, so it’s a good time to remind ourselves what the final state of play is concerning the dual rates of 27.5% and 30%.

 

There are two categories of companies when it comes to the corporate tax rate. The two categories are determined by turnover and business activity.The rate of 27.5% applies to corporate tax entities known as “base rate entities”. What is a base rate entity? Put simply, it is a company which carries on a business and has an aggregated turnover of less than $50 million. This is up from $25 million in the last financial year (ie 2017-18), but will stay at $50 million until 2023-24. The ALP has confirmed that it will not change the rules for base rate entities if elected – so there we have our first certainty.

 

The rate for base rate entities is locked in at 27.5% until 2023-24. The tax rate for all other companies remains at 30%, ie the standard corporate tax rate. This will not change.

 

There had been legislation before Parliament that proposed to progressively extend the 27.5% corporate tax rate to all companies regardless of turnover. However, the legislation did not make it through the Senate and the Government has since announced that it would not proceed with this proposal. This provides us with our second certainty – there will be no changes to the standard corporate tax rate.

 

The tax rate for base rate entities is scheduled to reduce after 2023-24, as this has already been legislated. It is reasonable to state this as the third certainty – that the tax rate for base rate entities will decline progressively to 25% by 2026-27.

 

Now, this is all perfectly straightforward if your company is carrying on what may be termed a trading business, eg providing services, buying and selling trading stock, importing/exporting etc. But if the activities of the company wholly or partly consist of receiving returns on investments – such as rent, interest and dividends (which are termed “passive income”) – then it can get a bit tricky.

 

The Government never intended that companies receiving passive income should benefit from the lower tax rate. It recently changed the rules for base rate entities to ensure this does not happen.

 

A base rate entity will only qualify for the lower 27.5% rate for a particular year if its passive income is less than 80% of its assessable income (and of course its aggregated turnover is less than $50m). Put the other way, companies that receive more than 80% of their income in passive forms will pay tax at the standard corporate tax rate, regardless of turnover.

 

The passive income is termed “base rate entity passive income” in the amending legislation. And what qualifies? Well, dividends and the associated franking credits to start with. Interest (or a payment in the nature of interest) also qualifies – but not if the entity is a financier – as well as royalties and rent. Another key area that qualifies as base rate entity passive income is net capital gains. This could be important for smaller companies – in that the sale of a substantial asset could shake the income mix and possibly put access to the lower rate at risk.

 

Does your company derive investment income?

If you are not sure of the implications of the new company tax rates, we can help. For example, if your business operates via a company, it may be worthwhile using the CGT rollover provisions to transfer assets into a separate entity, to ensure that the 80% rule is not breached. The split 27.5% / 30% rate also has implications for the imputation system and franking credits, which we would be happy to discuss.

What Expenses Can I Deduct For My Holiday Home?

The ATO is on the lookout for holiday home owners who may be over-claiming their expenses. Where a property is used partly for private purposes and partly to earn rental income, it is essential to identify what proportion of the income year is attributable to each use. Importantly, some property owners may be over-claiming their expenses because their property is not “genuinely available” for rent, despite the property being advertised to some extent.

 

Renting out your holiday home for part of the year can help to finance the costs associated with purchasing and maintaining the property. As well as providing an income stream, this will also allow you to deduct some of the expenses such as interest payments on a loan you have taken out to buy the property, repairs, cleaning services, council rates and insurance. Last year the ATO announced it will scrutinise holiday home deductions because of concerns that some taxpayers with mixed-use properties are over-claiming. Holiday home owners should therefore ensure they understand the ATO’s guidance on claiming deductions.

 

The basic rules

Your total expenses relating to the property for an income year should be apportioned on a time basis, ie how much of the income year the holiday house was rented out. You should apportion between three time periods:

 

-When it was rented out or genuinely available for rent – you may deduct a proportion of your expenses equal to this proportion of the year. For example, if your holiday house was rented out (or available for rent) for 80% of the year, you may deduct 80% of your expenses.

-When it was used privately by you, or by family, relatives or friends free of charge – you may not deduct the proportion of expenses that relates to this private use period.

-When it was rented out to family, relatives or friends below market rates – you may deduct a proportion of your expenses equal to this proportion of the year, but only up to the amount of rent actually received during this period. That is, the dollar amount of total deductions claimed in respect of this period cannot exceed the dollar amount of rental income received.

 

If your expenses are not fully deductible today, they may be taken into account if you make a capital gain when you eventually sell the property. The proportion of expenses that you are not able to deduct now may reduce the size of the future capital gain.

 

“Genuinely available” for rent
You may deduct expenses for a period when the holiday home is not rented out but is “genuinely available” for rent. However, the ATO is concerned that some taxpayers have been incorrectly claiming deductions for properties that are not genuinely available. The ATO considers the following to be indicators that a taxpayer does not have a genuine intention to make income from their property:

 

Setting a rental rate that is above market rates.

 

-Using the property for private use during high-demand periods, and only making the property available to rent when there is little or no demand for the property.

-Failing to advertise the property to a wide audience. (Advertising to restricted social media groups, at your workplace or by word-of-mouth is considered insufficient.)

-Placing unreasonable conditions on prospective tenants, such as requiring tenants to provide references for a short holiday stay.

-Turning away prospective tenants without providing adequate reasons.

 

Check your holiday home expenses

Given the ATO’s compliance focus in this area, it is vital that holiday home owners maintain good records and ensure they are not over-claiming deductions. Contact us to discuss your property and review your expenses. We can also check whether you have any additional deductible expenses that you might have previously overlooked.

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