Restoring damaged tax records after a natural disaster
Tax | 01 22nd, 2020|

In the event that your records have been damaged or destroyed in a natural disaster, such as bushfires, there are a number of ways you can reconstruct them. The ATO is able to help with reconstruction in the event tax records have been lost or damaged.

Where the tax records are lost or destroyed as a result of a natural disaster, the ATO will allow time for individuals to get their more pressing issues in order. They provide support by:

  • Allowing lodgment deferrals of activity statements or tax returns without penalties.
  • Allowing additional time to pay tax debts without incurring general interest charges.
  • Making arrangements for tax payments to be done by instalments.
  • Fast-tracking refunds.
  • Arranging field visits to help with reconstructing tax records.

The ATO holds and can re-issue or supply copies of tax documents, such as income tax returns, activity statements and notices of assessment. If you have lost your TFN, you can still access your tax information by phoning the ATO.

If you are unable to substantiate claims made in your tax returns or activity statements because records have been damaged or destroyed, the ATO can accept the claim without substantiation, where it is not reasonably possible to obtain the original documents.

What are franking credits?
Tax | 01 15th, 2020|

Franking credits are a kind of tax credit that allows Australian companies to pass on the tax paid at a company level to shareholders. Franking credits can reduce the income tax paid on dividends or potentially be received as a tax refund.

Where a company distributes fully franked dividends (and those dividends are included in the taxable income of the taxpayer) the taxpayer can claim a credit against their taxable income for the tax that has already been paid by the company from which the dividend was paid.

Since the 2016-17 income year, the standard formula for calculating the maximum franking credits is:

Franking credit = (dividend amount / (1-company tax rate)) – dividend amount

Franking credits are paid to investors in a 0-30% tax bracket, proportionally to the investor’s tax rate. If an individual’s top tax rate is less than the company’s tax rate, the ATO will refund the difference. Therefore, an investor with a 0% tax rate will receive the full tax payment paid by the company to the ATO as a tax credit. Franking credit payouts decrease proportionally as an investor’s tax rate increases. Investors with a tax rate above 30% do not receive franking credits with dividends and may even have had to pay additional tax.

There can be eligibility requirements that must be met before franking credits can be paid, such as that you must hold the shares ‘at risk’ for at least 45 days to receive a total franking credits entitlement of $5,000 or more. There are also rules that can apply to buying, holding and selling shares with franking credits attached.

Tax implications of buying a holiday home
Tax | 01 9th, 2020|

Buying a holiday house can seem appealing, whether it’s to rent out for income, for your own holidays or both. However, it is important to be aware of the different tax implications for how you choose to use your holiday house.

If you own a holiday house and do not rent it out, you cannot claim any expenses relating to the property. If you decide to sell the property, you will need to calculate your capital gain or loss. Even though you don’t need to include anything in your tax return while you own the property, it is still important to keep all records to determine the capital gains tax implications for when you sell it.

If you own a holiday house and rent it out to others, you have to include the income you receive from rent as part of your income in your tax return. Deductions can be claimed on expenses incurred for the purpose of producing rental income, such as cleaning, advertising costs, pest control, insurance, maintenance and repairs. The cost of repairs and renovations cannot be claimed immediately, but are deductible over a number of years.

You are only able to claim deductions for the periods the property is rented out or genuinely available for rent. A holiday house may not be considered genuinely available when:

  • It has none or limited advertising, e.g. when you only advertise by word of mouth or restricted social media pages.
  • It is rented out free or discounted to family and friends.
  • You use the property for yourself.
  • There are unreasonable conditions for renting, e.g. restricting children and pets and only being available during off-peak holiday seasons.

If a holiday house is shared between two owners, then the deductions need to be split accordingly. For example, if the house is owned 50-50, then the owners can claim equal shares of the expenses. If one partner owns 20% of the property, they can only claim 20% of the expenses.

Removal of the main residence exemption for non-residents
Tax | 01 9th, 2020|

The government has changed capital gains tax (CGT) rules for foreign residents under the Treasury Laws Amendment (Reducing Pressure on Housing Affordability Measures) Bill 2019, which was granted assent on 12 December 2019.

The law change no longer allows foreign residents to claim the CGT main residence exemption, which will impact people who are overseas or will be going overseas and want to sell residential property in Australia while they are a tax non-resident of Australia. However, this may not apply if you were a foreign resident for tax purposes for a period of six years or less during a CGT event occurrence on your Australian residential property, and a ‘life event’ occurred, including if:

  • You, your spouse or your underaged child had a terminal medical condition.
  • Your spouse or underaged child died.
  • The CGT event involved the distribution of assets between you and your spouse because of divorce, separation or other maintenance agreements.

Individuals who will be impacted by the changes are non-tax residents who:

  • Sell a property bought after 9 May 2017 and do not experience a ‘life event’.
  • Sell property after six years of becoming a tax non-resident of Australia, regardless of a life event.

If you were not an Australian resident for tax purposes while living in your property, then it is unlikely that you will meet the requirements for the CGT main residence exemption.

Tax on gifts and donations
Tax | 12 11th, 2019|

Individuals can claim tax deductions when giving gifts or donations to organisations that have the status of deductible gift recipients (DGR).

To be eligible to claim a tax deduction for a gift, the ATO stipulates that it must meet the following four conditions:

  • The gift must “truly be a gift”; that is, a voluntary transfer of money or property where the giver receives no material benefit or advantage.
  • The gift must be made to a deductible gift recipient (DGR).
  • The gift must be money or property, this can include financial assets such as shares.
  • The gift must comply with any relevant conditions. For some DGRs, the income tax law adds extra conditions affecting the types of deductible gifts they can receive.

What you can claim:
The amount an individual can claim for a gift or donation depends on the type of gift given. For gifts of money, individuals can claim the total amount of the gift, as long as it is $2 or more. Different rules exist for gifts of property, and the amount of the tax deduction depends on the value and type of property. There are special circumstances where donations to Heritage and Cultural programs can also be deductible and are based on the value of the donation.

What you can’t claim:
Individuals cannot claim a tax deduction for gifts or donation items that provide some personal benefit, such as:

  • Raffle tickets.
  • Membership fees.
  • Payments to school building funds.
  • Payments where there is an understanding with the giver and recipient that the payments will be used to provide a substantial benefit for the giver.
Paying tax on term deposits
Tax | 12 4th, 2019|

The interest you earn from term deposits is subject to tax, just like your regular income. You have to declare investment income on your tax return, including interest in the year it was credited or received.

The amount of tax you need to pay depends on the amount of interest you earn on your term deposit as it is part of your overall taxable income and will, therefore, be taxed at the same marginal tax rate that applies to the rest of your income. The ATO’s marginal tax rates for the current financial year are:

  • $0 for an income of $18,200
  • 19c for each $1 over $18,200 for an income of $18,201 – $37,000
  • $3,572 plus 32.5c for each $1 over $37,000 for an income of $37,001 – $90,000
  • $20,797 plus 37c for each $1 over $90,000 for an income of $90,001 – $180,000
  • $54,097 plus 45c for each $1 over $180,000 for an income of $180,001 and over

If you decide to roll over your interest earnings into a new term deposit, you will still need to declare the interest on your tax return if you choose to reinvest the money instead of accessing it.

Term deposits run under a joint account will have the ATO assuming each person has equal ownership to the funds in the account. This means that the interest earned is equally split between you and your account partner(s), where you will have to pay tax on your portion. If the funds in your account are not split equally, you can provide the ATO with documentation proving the amount you each earn and be taxed different amounts accordingly.

Making NRAS claims
Tax | 11 27th, 2019|

The national rental affordability scheme (NRAS) started on 1 July 2008, encouraging large-scale investment in affordable housing. It offers tax and cash incentives to providers of new dwellings for 10 years, granted they are rented to low and moderate income households at 20% below market rates.

Though the NRAS is no longer taking new investments, property owners within the scheme will soon be receiving letters from the ATO to remind them of their claim requirements.

The two key elements of the NRAS are;

  • An Australian Government contribution in the form of a refundable tax offset or direct payment to the value of $8,394.10 per dwelling per year in 2018-19. The Australian Government contribution is 75% of the total annual incentive.
  • A state or territory contribution in the form of direct financial support or an in-kind contribution to the value of at least $2,798.03 per dwelling per year in 2018-19. The state or territory contribution is 25% of the total annual incentive.

Owners of NRAS rental property are eligible to claim a refundable tax offset if:

  • The Approved Participant has provided them with advice of their entitlement based on the certificate received from the Housing Secretary, and;
  • The claim is made in the year to which the certificate relates.

Deductions can be claimed for expenses incurred with a NRAS rental property, excluding the contribution amount received from the state or territory. The contribution amount is non-assessable, non-exempt (NANE) income for tax purposes.

Introducing ASFP
Tax | 11 25th, 2019|

Plans are underway to carry out a system change during the December closure of the ATO, to introduce Activity statement financial processing (ASFP). This change will move the majority of taxpayer financial information into one accounting system that will have multiple accounts.

ASFP will shift activity statement and franking deficit tax accounts from the current ATO system into their primary accounting system, covering all the different taxes they administer. This change is intended to help improve ATO digital services by delivering simplified transaction descriptions and summary views of “statement of account transactions” with the ability to view full account transaction if required.

During the closure, a number of ATO online services will be unavailable. These include;

  • SuperMatch: A service that enables APRA-regulated funds to consolidate member accounts.
  • EmployerTICK: An online service employers can voluntarily use to validate employee details, prior to making the first contribution to a super fund.
  • Fund Validation Service (FVS): A service that enables employers and funds to obtain APRA-regulated funds’ e-commerce details that support SuperStream transactions.
  • Electronic portability form (EPF): An ATO-hosted form that can be used by fund members to transfer the whole balance of super accounts between APRA-regulated funds, or to member’s self-managed super fund.
  • Member Account Attribution Service (MAAS): A service for super providers and life insurance companies to report the opening and closing of accounts, and changes to a member’s account phases and attributes when they occur (event-based reporting).
  • Member Account Transaction Service (MATS): A service for super providers and life insurance companies to report member contributions or transactions more frequently and at a transactional level.
  • Small business superannuation clearing house (SBSCH): The superannuation clearing house is a free online super payments service that can be used by employers with 19 or fewer employees or have an annual aggregated turnover of $10 million or less, to pay super contributions in one transaction to a single location.
Time limit on GST refunds
Tax | 11 13th, 2019|

Small businesses entitled to refunds of GST may not be aware of the four-year time limit on claiming those refunds. Your entitlement to a GST credit ends four years from the due date of the earliest activity statement in which you could have claimed it.

GST refunds are claimed under the indirect tax concession scheme (ITCS), which also covers luxury car tax (LCT), wine equalization tax (WET) and excise. They are a form of “outstanding indirect tax refunds”, which are tax refunds that are entitled to the taxpayer but are yet to be claimed. “Outstanding indirect tax refunds” can be claimed in the following cases.

Refund of a net amount for a tax period:
This applies to those that have yet to lodge an activity statement for a tax period. Small businesses that have GST entitlements that amount to $2,000, (which exceeds the net GST, WET and LCT liabilities for that period $1,500), are able to claim an outstanding indirect tax refund of $500.

Refund of an overpayment of a net amount:
Due to a clerical error, a business owner reports and pays $4,600 net GST for a tax period instead of the actual amount of $4,060. The excess amount of $540 is an outstanding indirect tax refund which the business can claim.

Refund due to an underreported initial net refund entitlement:
A business claims a net GST refund of $3,000 for the tax period and receives the refund. Afterwards, however, it is realised that the actual refund entitlement was $3,200, the excess $200 represents an outstanding indirect tax refund that can be claimed.

Limiting tax deductions for holding vacant land
Tax | 11 7th, 2019|

On the 28 October 2019, The Treasury Laws Amendment (2019 Tax Integrity and Other Measures No.1) Bill 2019 received royal assent. The new tax law creates limitations for deductions related to the expenses of holding vacant land from 1 July 2019. This is likely to affect those who acquire land for investment purposes and begin developing for rental investment purposes.

The amendments will only apply to holdings on ‘vacant land’, meaning that it will not apply to any land that has a substantial and permanent structure in use or ready for use, or is a residential premise that is lawfully able to be occupied. Land is considered vacant if both of these are not true.

The changes will not apply to vacant land held by ‘excluded entities,’ which are:

  • Corporate tax entities.
  • Managed investment trusts.
  • Public unit trusts.
  • Superannuation plans other than self-managed superannuation funds (SMSFs).
  • Unit trusts or partnerships where all members are of the excluded entities listed above.

The law will also be inapplicable if:

  • Structures affected by natural disasters or similarly exceptional situation.
  • The land is in use or available for use in carrying on a business by the taxpayer or their affiliates, connected entities, spouse or child under 18.

The land is in use or available for use for business purposes under an arm’s length rental arrangement.

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