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Will I Qualify For The Age Pension?

 

As we start to think about retirement, one of the first questions many of us ask is “Will I qualify for the Age Pension?” To help you understand your eligibility, we outline the basic thresholds that apply under the different means tests and what types of assets and income sources are included.

 

Knowing whether you’ll be entitled to the Age Pension is an important part of your retirement planning. Once you reach Age Pension age (66 years from 1 July 2019), you’ll also need to pass two tests: the assets test and income test. If your eligibility works out differently under the two tests, the less favourable result applies.

 

Assets test

If you own your own home, to qualify for the full pension your “assets” must not be worth more than $258,500 (for singles) or $387,500 (for couples). For non-homeowners, these limits are $465,500 and $594,500.Above these thresholds, you may qualify for a reduced pension. However, your entitlement to the pension ceases if your assets are worth more than $567,250 (for single homeowners) or $853,000 (for couples). For non-homeowners, these limits are $774,250 and $1,060,000.

 

So, what “assets” are included? All property holdings other than your principal home count, less any debt secured against the property.

 

There are also special rules for granny flat interests and retirement home contributions, so get advice before moving into these accommodation options.

Investments like shares, loans and term deposits or cash accounts all count, as do your share in any net assets of a business you run and part of the market value of assets in any private trusts or companies you’re considered to “control”.

And once you reach Age Pension age, your superannuation is also included. This includes your accumulation account and most income stream accounts.

 

How you structure your investments could make a big difference. Consider the following tips:

-Selling the family home can significantly impact your assets test position. For example, if you sell and put the proceeds into superannuation, that wealth will become subject to the assets test.

-Paying more off your home mortgage may improve your assets test position. For example, if you meet a condition of release you might consider withdrawing some superannuation benefits and using these to pay down your mortgage.

-Be careful when “gifting” away assets, including selling assets to your children below market value. The value of gifts in excess of $10,000 in a financial year, or $30,000 across five financial years, will count towards the test.

 

In any case, before changing your asset structure you should ask: does it make financial sense to rely on the Age Pension? You may be better off building investments that will generate a higher income for you in retirement.

 

Income test

If you earn up to $172 per fortnight as a single (or $304 as a couple), you can potentially receive the full pension. Above this, your pension entitlement will taper down before ceasing at income of $2,024.40 per fortnight for singles and $3,096.40 for couples. A “Work Bonus” allows pensioners to earn up to $250 from employment per fortnight without it affecting their pension.

 

The income test is broad and includes any gross amounts you earn from anywhere in the world. As well as your income from employment (above the Work Bonus) or business activities, the test also includes things like investment income (eg dividends, trust distributions and rental income), superannuation income streams and even a share of the income in any private trusts or companies you “control”.

 

Your income from certain financial assets is “deemed” at a certain rate. If your actual earnings from these investments exceed the deeming rate, the excess doesn’t count towards the income test. The deeming rules apply to assets like listed shares and managed investments, savings accounts and term deposits, and many superannuation accounts.

 

Plan for a secure retirement 

Contact us to start your retirement planning today. We’ll advise you on the most beneficial way to approach your income from superannuation, the Age Pension and other investments to help you achieve the best retirement outcome.

SMSFs Vs Other Types Of Funds: Some Issues To Consider

 

For many people, SMSFs are a great option for building retirement savings, but they may not be suitable for everyone. Before you jump in, make sure you understand the differences between SMSFs and other types of funds to help you make an informed decision.

 

Thinking about setting up an SMSF? In this first instalment of a two-part series, we explain some of the key differences between SMSFs and public offer funds. Understanding these differences can help you have a deeper discussion with your adviser.

 

Management

While public offer funds are managed by professional licensed trustees, SMSFs are considerably different because management responsibility lies with the members. Every SMSF member must be a trustee of the fund (or, if the trustee is a company, a director of that company).

This is an advantage for those who want full control over how their superannuation is invested and managed. However, it also means the members are responsible for complying with all superannuation laws and regulations – and administrative penalties can apply for non-compliance. Being an SMSF trustee therefore means you need to be prepared to seek the right professional advice when required.

 

If you intend to move overseas for some time (eg for a job posting), an SMSF could be problematic because it may be hit with significant tax penalties if the “central management and control” moves outside Australia.

 

 

On the other hand, members of public offer funds can move overseas without risking these penalties because their fund continues to be managed by a professional Australian trustee.

 

Costs

Costs are a key factor for anyone considering their super options. Fees charged by public offer funds vary, but are generally charged as a percentage of the member’s account balance. Therefore, the higher your balance, the more fees you’ll pay. This is an important point to remember when weighing up a public offer fund against an SMSF.

SMSF costs tend to be more fixed. As well as establishment costs and an annual supervisory levy payable to the ATO, SMSFs must hire an independent auditor annually. Additionally, most SMSF trustees rely on some form of professional assistance, which may include accounting/taxation services, financial advice, administration services, actuarial certificates (in relation to pensions) and asset valuations.

 

These costs may be a more critical factor for those with modestly sized SMSFs. This year, a Productivity Commission inquiry found that larger SMSFs have consistently delivered higher net returns compared with smaller SMSFs, and that SMSFs with under $500,000 in assets have relatively high expense ratios (on average). The Commission’s report has attracted some criticism that it has overstated the true costs of running an SMSF, but in any case, anyone considering an SMSF needs to think carefully about the running costs involved and make an informed decision about whether an SMSF is right for them. For members with modest balances, an SMSF will often be more expensive than a public offer fund, but this needs to be weighed up against the other benefits of an SMSF.

 

Investment flexibility

A major benefit of an SMSF is that the member-trustees have full control over their investment choices. This means they can invest in specific assets, including direct property, that would not be possible in a public offer fund. For example, a business owner wishing to transfer their business premises into superannuation would need an SMSF to achieve this. SMSFs can also take advantage of gearing strategies by borrowing to buy property or even shares through a special “limited recourse” borrowing arrangement.

However, with control comes responsibility. SMSF trustees must create and regularly update an “investment strategy” that specifically addresses things like risk, liquidity and diversification. And of course, the SMSF’s investments must comply with all superannuation laws. In particular, transactions involving related parties (eg leases and acquisitions) can give rise to numerous compliance traps, so SMSF trustees must be prepared to seek advice when required.

 

Need help with your decision?

Contact our office to begin a discussion about whether an SMSF can help you achieve your retirement goals.

How Illegal Phoenixing Affects You

Every year, illegal phoenix activity costs the Australian economy billions of dollars not to mention the direct costs to businesses, employees, and the government. Just how much has been quantified by a recent report commissioned by three government agencies. Overall, the direct cost to businesses, employees, and the government has been calculated to around $2.85bn to $5.13bn, while the total impact to the Australia economy is around $1.8bn to $3.5bn in lost gross domestic product.

 

According to the Australian Bureau of Statistics, at the end of 2016-17 the number of businesses that ceased operating in Australia amounted to 261,450, an increase of 0.5% from the previous year. While most of these are likely to be honest commercial failures, after all, there are statistics that indicate that around 60% of Australian small businesses fail within the first 3 years, a percentage of these yearly failures may be attributable to illegal phoenixing.

 

Illegal phoenixing is the deliberate liquidation of a company to avoid liabilities while simultaneously commencing similar operations in another company or trading entity. This type of illegal activity leaves behind not only outstanding payment to tax authorities, but also unpaid creditors, unfulfilled customer orders and unpaid employee entitlements.

 

“[Illegal phoenixing] can occur in any industry or location. However illegal phoenix activity is particularly prevalent in major centres in building and construction, labour hire, payroll services, security services, cleaning, computer consulting, cafés and restaurants, and childcare services. [it is also seen] in regional Australia in mining, agriculture, horticulture and transport. There is an emerging trend in intermediaries who promote or facilitate illegal phoenix behaviour.”

 

To tackle this issue on a national level, the Inter-Agency Phoenix Taskforce has been established to identify, manage and monitor suspect illegal phoenix activity. This task has been made significantly easier with the development of the ATO Phoenix Risk Model (PRM) which allows for the identification of potential illegal phoenix population which can be more closely monitored by the taskforce. As at June 2018, the taskforce comprises of 29 government agencies including all State and Territory Revenue Offices.

 

A recent report commissioned by three Phoenix Taskforce member agencies (ATO, ASIC and the Fair Work Ombudsman) into the economic impacts of illegal phoenixing activity shows a sobering picture of how this illegal activity affects all of us, either directly, or through broader economic impacts:

-direct cost to businesses in the form of unpaid trade creditors is $1,162-$3,171m;
-direct cost to employees in the form of unpaid entitlements is $31-$298m;
-direct cost to the government in the form of unpaid taxes and compliance cost is $1,660m; and
-the net effect to the Australian economy is $1.8bn-$3.5bn lost gross domestic product.

 

As the figures show, illegal phoenix activity has deep financial impact on the Australian economy. Not to mention the costs unable to be captured by the report such as employee stress related to losing their jobs, discouragement effect on labour supply due to people not getting their full entitlements, increased social welfare burden through increased government support, and distortionary competition effects on lawful businesses.

 

How to protect yourself

As an employee, you should ensure that you receive a payslip and regularly review your entitlements and superannuation. As a business owner, look out for warning signs such as a company offering lower than market value quotes, or changes to a company name with the same management or staff. If you think you may be dealing with a company the is involved in illegal phoenixing, we can help with the due diligence before you enter into any business arrangements.

 

Working And Studying Part-Time: Can I Deduct My Course Fees?

If you’re working and also studying part-time in a work-related course of education, you may be able to deduct some expenses like tuition fees. However, to be eligible there must be a sufficient connection between the course and your current job. Make sure you understand the ATO’s criteria before making a claim.

 

Planning on going “back to school”? The costs can really add up, but the good news is that your course fees may be deductible if the course is sufficiently related to your current employment. In this first instalment of a two-part series, we explain when you can deduct your tuition fees for work-related education. Our second instalment will look at other expenses like textbooks, computers and travel.

 

What courses are eligible?

The first step is to work out whether the course you’re studying entitles you to claim self-education deductions. Not all courses you study while you’re working will be eligible.

Importantly, the course must lead to a formal qualification from a school, college, university or other educational institution. Courses offered by professional associations (as well as other work-related seminars, workshops and conferences) generally don’t come under “self-education” for tax return purposes, but these course fees will often be deductible as “other work-related expenses” in a separate part of your tax return. Your tax adviser can help you determine how to claim these.

Second, there must be a sufficient connection between your formal course of study and your current income-earning activities.

This 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.

 

Therefore, a course that directly enables you to:

-become more proficient in performing your current job;
-move up to a new pay scale; or
-be promoted to a higher-salary position with your current employer
is likely to be eligible.

 

However, the ATO says it’s not sufficient if a course is only generally related to your job, or if it will help you to get employment or get new employment. The ATO gives the following as examples of study that would not be eligible:

-An undergraduate student studying a course with the intention of working in that industry in future.
-A worker studying in order to change industries, or to get a new type of job within the same organisation.
-A professional like a general medical practitioner studying to become a specialist in a particular field of medicine.

 

When are course fees deductible?

If your course has the necessary connection to your current work as explained above, you can deduct course fees that are funded under the government’s “FEE-HELP” or “VET FEE-HELP” loan programs. However, you can’t deduct course fees funded under the “HECS-HELP” program.

You also can’t deduct any repayments you make under any government loan scheme. This is best illustrated by an example:Sarah is an employee who is also enrolled part-time in a course funded by a FEE-HELP loan. This course will help her improve skills needed in her current job. Her tuition fees for this financial year are $2,000. She can claim this $2,000 as a deduction in her tax return.

When she later makes repayments on her FEE-HELP loan (either compulsory or voluntary), those repayments will not be deductible.

If you’re paying course fees yourself without any government assistance, you can claim a deduction and you can also claim the interest expenses on any loan you’ve privately taken out to finance this (eg a bank loan).

In many cases, taxpayers are required to reduce their total claim for self-education expenses by $250. This depends on what other self-education expenses you incur in the financial year. Your tax adviser can perform the necessary calculations to finalise your claim.

 

Get it right before you claim

Tertiary course fees can involve some large deductions. Talk to us today for expert advice on your eligibility and to ensure your claim will stand up to ATO scrutiny.

Black Economy Taskforce: Who Could Be Included

 

In a bid to crack down on tax evasion, the Government has proposed to extend the taxable payment reporting system to two new high risk sectors identified by the Black Economy Taskforce: cleaning services and couriers. The Government cited the improved tax compliance in the building and construction industry as a model of what can be achieved in newly targeted sectors. We will keep you up to date with developments in this area as legislation is enacted.

 

The proposed new laws will require entities that provide courier or cleaning services to report to ATO details of transactions involving contractors. According to ATO guidance, contractors include sole traders (individuals), companies, partnerships, or trusts.

 

For couriers, the proposal captures any service where an entity collects goods (ie, packages, letters, food, flowers, or any other goods) and delivers them to another location.

 

The Government is hoping the imposition of additional compliance will encourage tax compliance, particularly in the food delivery market, which is gaining in popularity.

 

Similarly, cleaning services have also been broadly defined in the proposal to refer to any service where a structure, vehicle, place, surface, machinery or equipment has been subject to a process in which dirt or similar material has been removed from it.

 

What will you need to declare?

If you employ couriers or cleaners

Entities captured by this measure will need to lodge an annual report to the ATO detailing each contractor’s ABN, name, address, gross amount paid for the financial year (including GST) and the total GST included in the gross amount that was paid. If this applies to you and you employ couriers or cleaners you may also be required to provide additional information, such as the contractor’s phone number, email address and bank account details. In essence, companies such as deliveroo, ubereats, foodora, as well as a host of other players, could face the increased compliance costs of having to lodge hundreds, if not thousands, of these reports to the ATO each year.

 

If you contract as a courier or cleaner

If you are a courier or a cleaner (and you provide contract services), the data collected about you will be used in data-matching programs to ensure that all of your income is reported correctly to the ATO. If you are contracted to a delivery company or a cleaning company you will need to keep careful records of what you are being paid. This is particularly important if you only work for these companies on an occasional or part-time basis.

 

How about the timing?

Should this proposal pass as law, the first annual report will be for the 2018–2019 financial year.

 

What to do next

Any relevant business that is required to report will need to collect relevant information from 1 July 2018, with the report due by 28 August 2019. Information from the reports (which will be data matched with information provided by contractors) will apply on tax returns for the 2018–2019 income year. Speak to us if you think this could be relevant to you.

Reverse Mortgage Lending And Retirement

Since the global financial crisis, demand for reverse mortgages have grown steadily. It allows older individuals, perhaps retirees, to unlock the equity in their homes while they continue to live in the property. However, reverse mortgages may not be all it’s cracked up to be. A recent review by ASIC found that borrowers had a poor understanding of the risks and future costs of their loan, inadequately documented long-term financial objectives, and lack of protection for non-borrowers who live in the property. When it comes to reverse mortgages, it may be a case of buyer beware.

 

Reverse mortgages are a credit product that allows older individuals to achieve their immediate financial goals by using the equity in their home to borrow amounts. The loan typically does not need to be repaid until a later time (ie when the borrower has vacated the property or has passed away). For older individuals who own their home but few other assets, the advantage of reverse mortgages is that it allows them to draw on the wealth locked up in their homes while they continue to live in the property. As good as it sounds, reverse mortgages may not be all it’s cracked up to be.

 

ASIC recently reviewed data on 17,000 reverse mortgages, 111 consumer loan files, lender policies, procedures and complaints, along with in-depth interviews with 30 borrowers and 30 industry and consumer stakeholders. The review evaluated the effectiveness of enhanced responsible lending obligations and examined 5 brands who collectively lent 99% of the dollar value of approved reverse mortgage loans from 2013 to 2017.

 

The average size of a reverse mortgage loan was found to be around $118,627 with an average home value of $632,598 (average loan-to-value ratio 26%). Borrowers typically took out reverse mortgages to pay for daily expenses, bills and debts, home improvements and car expenses. Unlike other loans, reverse mortgage borrowers had limited choices due to a lack of competition, with 2 credit licensees writing 80% of the dollar value of new loans from 2013 to 2017.

 

The review also found that borrowers had a poor understanding of the risks and future costs of their loan, and generally failed to consider how their loan could impact their ability to afford their possible future needs. In addition, it found reverse mortgages were a more expensive form of credit compared to standard variable owner occupier home loans with the interest rates typically being 2% higher and as no repayments are required, the interest compounds.

 

According to ASIC, lenders have a clear role to play and in nearly all the loan files reviewed, the borrower’s long-term needs or financial objectives were not adequately documented. 

 

This is important as borrowers can never owe the bank more than the value of their property, however, depending on when a borrower obtains their loan, how much they borrow, and economic conditions (eg property prices and interest rates), they may not have enough equity remaining in the home for longer term needs such as aged care.

 

The other concerning finding by ASIC is that some reverse mortgages may not protect other residents in the home. For example, if a borrower vacates the property or passes away, the borrower or their estate can often only afford to pay off the loan balance of a reverse mortgage by selling the property. This can require non-borrowers still living in the home (ie a spouse, relative, or adult children) to move out unless the contract contains a “tenancy protection” provision allowing them to remain in the home for a period of time.

 

Only one lender in the review offered a limited option to include a tenancy protection provision in their loan contract which lasted for one year after the death of the borrower with certain conditions. Other lenders in the review would only protect non-borrower residents if they added their name to the loan contract. ASIC notes that under enhanced consumer protections, lenders must give potential borrowers a prescribed tenancy protection warning, which did not occur in a majority of the cases.

 

Thinking of getting a reverse mortgage?

If you think a reverse mortgage would suit your retirement needs, come and speak to us today to ensure that you get the full picture before you sign up to anything. We can help you understand all the terms and protections to make the most out of your retirement.

Are You Declaring Your “Odd Jobs” Income From Gig Economy Sites?

“Gig economy” platforms like Airtasker are allowing Australians to earn some extra cash by completing a staggering variety of odd jobs – everything from gardening to data entry and even standing in line for concert tickets! But if you earn money from these platforms, you must ensure you meet your tax obligations.

 

Have you ever considered joining a site like Airtasker to make some extra cash? If so, you’ll need to keep the ATO happy. Here, we explain the tax issues that arise when you earn money performing “gigs” through Airtasker, or any other online platform that connects workers with third-party hirers looking for help with one-off tasks.It’s important to understand that these platforms are used by everyone from “moonlighters” making some extra dollars on top of their regular job, through to self-employed people running substantial businesses (eg tradespeople) who use these platforms to pick up extra clients. Certain tax issues like GST registration can therefore depend on the person’s particular circumstances.

 

Is this money assessable income?

Yes, you must declare this income in your tax return. This means you must keep records of the amounts you earn.

 

If the platform charges you a fee or commission, you must declare the gross amount of income you earn. For example, if Sally earns $100 from a gardening gig and pays the platform a $15 service fee, she must declare the full $100 as income in her tax return.

 

However, you’re entitled to claim relevant deductions, including platform fees and commissions. You may also be able to deduct other expenses you incur in generating the income, including equipment and some car expenses. If your expenses also entail some personal use, you’ll only be able to claim a portion of the expenses. Your tax adviser can explain exactly what you’re entitled to deduct and how to substantiate this. In the meantime, ensure you keep receipts of all expenses related to your gigs.

 

How does GST work?

If your annual turnover is $75,000 or more, you must register for GST. Below this threshold, registration is optional. Being registered for GST means:

-You must report and remit GST of 10% to the ATO. This involves additional administration, and you’ll need to take this into account when deciding what price you’re willing to perform a “gig” for. Other workers you’re competing against who aren’t GST-registered may be willing to perform a gig at a lower price.

-However, you can claim GST credits on the GST components of business expenses you incur, including the GST included in any platform fees. (Note that where you can claim a GST credit for an expense, you can only claim the GST-exclusive part of that expense as an income tax deduction in your annual tax return.)
If you’re below the $75,000 threshold, seek advice from your adviser about whether GST registration would be worthwhile in your situation.

 

Do I need an ABN?

If you must register for GST (or wish to do this voluntarily), you’ll need an ABN. But what if your turnover is below $75,000 and you don’t want GST registration? While you’re not legally required to have an ABN, there are downsides of not having one: in some cases, businesses who hire you may have to withhold tax at the top marginal rate from the payment if you don’t provide an ABN.

Anyone who carries on an “enterprise” may apply for an ABN. Most gig platform users, as independent contractors performing services to make money, arguably carry on an enterprise. If you’re only planning to use gig platforms very occasionally (or as part of a genuine “hobby” like photography or crafting, rather than to make a profit), talk to a tax adviser about your ABN needs.

 

More time earning, less time on tax!

Whether you’re using gig platforms occasionally or as part of a significant business, let us handle all your tax issues. We offer expert advice and assistance with deductions, ABNs and GST, freeing you up to spend more time pursuing your income-earning opportunities.

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.

Working-From-Home Deductions For Employees

More people are working from home than ever before. Employees who work from home may be able to deduct some of the expenses they incur in running a home office or for phone and internet usage. The key to claiming these deductions is to understand when expenses are deductible and what taxpayers must do to support their claim.

 

If you are an employee and you sometimes work from home, you may be able to claim deductions for some of the expenses you incur, provided you are not reimbursed by your employer. Here, we consider two common types of expenses that employees may claim and how you must substantiate your deductions.

 

Home office running expenses

Running expenses such as heating, cooling and lighting costs are only deductible if you exclusively use these services while performing work at home.

 

For example, the ATO says that you would not be able to claim deductions for these expenses if you work on your laptop while sitting next to your partner who is watching TV.

 

 

However, if you perform work in a room when others are not present, or in a separate room dedicated to work activities, you may be able to claim some running expenses. This is because you are entitled to a deduction when you incur additional running expenses as a result of your income-producing activities (ie above what you incur for domestic or private use).

 

In practice the ATO accepts two methods for calculating your deduction:

-A simple rate of 52 cents per hour worked (effective from 1 July 2018), which covers all the running expenses you can claim (including decline in value of home office items such as furniture). To substantiate your deduction, you only need to record how many hours you worked from home in the income year. If your hours are regular and constant throughout the year, the ATO will accept a diary of a representative four-week period as sufficient record-keeping.

-Alternatively, you can claim the work-related proportion of actual expenses incurred by maintaining thorough records and evidence. This is a more complex method suitable for taxpayers who would be entitled to claim more than the 52 cents per hour rate would allow. You should seek advice about this method to ensure your evidence will meet ATO requirements.

 

Phone and internet usage expenses

You can claim up to $50 in total for all work-related device usage charges (phone calls, text messages and internet) with basic documentation only. The ATO accepts these methods of calculation:
-Home phone: 25 cents per work call
-Mobile phone: 75 cents per work call and 10 cents per work-related text message.
-Internet data: basic records reflecting time spent or data used for work purposes.

However, if you need to deduct more than $50, you must maintain detailed written evidence to substantiate the work-related proportion of your expenses. The ATO has some guidelines about apportionment, taking into account complexities such as bundled phone and internet plans, and itemised versus non-itemised phone bills. The key is to use a “reasonable” basis for your apportionment.

 

Deductions for electronic devices are calculated separately. If you purchase these items to help you earn income, you may be entitled to an immediate deduction for items costing $300 or less, or a deduction for decline in value for more expensive items.

 

What can’t employees claim?

Occupancy expenses such as rent, mortgage interest, council and water rates, land taxes and insurance premiums are usually not deductible for employees who work from home.

The ATO also says that casual employees cannot claim deductions for telephone rental expenses. This is because they are not “at call” and do not derive assessable income until they commence duties at their place of employment.

 

Check your expenses

If you work from home as an employee, talk to us today to check whether you are claiming all of the expenses you are entitled to. We can also help you ensure that you are keeping adequate records and evidence to protect you in the event of an ATO audit.

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