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* Personal income tax measures


1.1 Limiting plant and equipment depreciation deductions to outlays actually incurred by investors – for residential investment properties acquired from Budget night on 9 May 2017


From 1 July 2017, the Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors in residential properties. Plant and equipment items are usually mechanical fixtures, or those that can be ‘easily’ removed from a property such as dishwashers and ceiling fans. These changes will apply on a prospective basis, with existing investments grandfathered. More specifically:


• Plant and equipment forming part of residential investment properties as of 9 May 2017 (including contracts already entered into at 7:30PM (AEST) on 9 May 2017) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.


• Investors who purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim a deduction over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors.


This is an integrity measure to address concerns that some plant and equipment items are being depreciated by successive investors in excess of their actual value

 

1.2 No deduction for travel expenses for residential rental properties


From 1 July 2017, the Government will disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.
This is an integrity measure to address concerns that many taxpayers have been claiming travel deductions without correctly apportioning costs, or have claimed travel costs that were for private travel purposes. This measure will not prevent investors from claiming a deduction for costs incurred in engaging third parties, such as real estate agents, for property management services.

What is tax planning

Tax Planning is where the taxpayer very sensibly changes around or re-arranges their affairs so that their business and financial involvements will result in increased profitability (their primary objective) and minimise tax payable (their secondary but just as important objective). In professional language, Tax Planning is - "the process of organising a taxpayer’s affairs so that as far as possible legally or commercially, the liability of the taxpayer to income tax (or any other taxes for that matter) is minimised". This type of tax planning is loosely referred to today as tax avoidance. A better term is Tax Minimisation or even better - Tax Saving Planning.

What is tax saving planning?

Tax saving is an exercise which can provide many hours of enjoyment, believe it or not. It can be a stimulating occupation and where successful a profitable one. However, we stress again that avoidance is really the only game to play. Whatever arrangement you investigate; ensure that you remain within the area of avoidance. The line between avoidance and evasion can be thin.

Tax Saving is best if it is both legally right and morally right. Taxpayers have successfully implemented some avenues mentioned here. Others are worthy of consideration and may be acceptable if structured in the right manner. Examine each one and see if it is applicable to your situation.

There are in fact countless situations that you can utilise in minimising taxation legally. You are limited only by your imagination.

The purpose of planning

The purpose of this section is not to explore how we can all evade taxation. The sole purpose is to emphasis the importance of good tax planning. But what do we mean? Tax planning is the sensible re-ordering of your affairs so that your business and financial involvements are undertaken with profitability as the primary aim. Minimising your tax bill within the framework of the law is the secondary (but just as important) objective. Tax planning means striving to reduce tax, right? Wrong! The aim of good tax planning is not to reduce taxes but to maximise your "after tax" income. Think about it for a while.

You may find that often it is better strategy to pay extra tax now in order to wind up with more "after tax" income at a later date. Whether we like it or not, the government will always be our "silent partner". The idea of tax planning then is to ensure that your silent partner does not draw more than they are entitled to. Just like any other business operation the share of profits must be fair and just and as dictated by the partnership agreement. In this case the agreement is the Tax Act and unfortunately we have little say in it.



Tax and Christmas Party

 

Christmas is fast approaching. In order to properly plan for any unforeseen tax problems, we provide a tax guide for your Christmas party.

Christmas party for employees (including family members and clients)

On-site Christmas party

If you are having a Christmas party, holding it on the business premises on a working day is usually more tax effective than holding it off-site. Food and drinks (including alcohol) are exempted from FBT for employees with no dollar limit, but no tax deduction for GST can be claimed. Where family members (or associates) attend and the costs of each family member (or associate) is $300 (inc. GST) or more, there is FBT on the associate’s portion of food and drink, and a tax deduction and GST credit can be claimed on the portion of the costs.

Where the Christmas party is held on a working day at the business premises with only employees and clients including finger food, light meals and provided with no alcohol, then there is no FBT, the entire cost is tax deductible and a GST credit can be claimed.

Off-site Christmas party

Christmas parties held off the business premises are exempted from FBT where the cost for the employee and their associates is less than $300 (inc. GST) per attendee. However, no tax deduction or GST credit can be claimed.

Gifts to employees

Gifts provided to employees or their associates are normally subject to FBT, unless the minor benefit exemption applies. For a minor benefit exemption to apply, it must be provided to an employee or their associate on an “infrequent” or “irregular” basis and the cost is less than $300 “per benefit” (inc. GST). This is irrespective whether it is an entertainment expense or not (refer to table). However a tax deduction and GST credit can only be claimed if the item is a non-entertainment expense.

Gifts to clients

Gifts to a client are generally tax deductible as they are made for the purpose of producing future assessable income. However, if gifts are considered to be entertainment gifts, then no tax deduction or GST can be claimed.


SMSF Transfer Balance Account Reporting (TBAR)

 

All super providers, including SMSF and life insurance companies, are required to lodge a TBAR to report events to an individual’s transfer balance account (TBA). The ATO has announced that TBAR will apply to SMSF from 1 July 2018.

Events to be reported in the TBAR include:

1. Super income streams in existence just before 1 July 2017.

2. Any of the following events that occurred on or after 1 July 2017

· Super income streams that have commenced in retirement phase

· Limited recourse loan borrowing arrangement payments

· Member contributions

· Compliance with a commutation authority by the Commissioner

· Personal injury (structured settlement) contributions

· Super income streams that stop being in the retirement phase, for example because the trustee failed to meet the minimum pension payment standards for an income stream.

The ATO considers that the most common events that require reporting would be:

1. the values of any retirement phase income streams to which an SMSF member is entitled, including reversionary income streams

2. the value of any commutation of a retirement phase income stream by an SMSF member

3. structured settlement payments an SMSF member receives and contributes to their fund

4. certain limited recourse borrowing repayments that give rise to a transfer balance credit as a result of recently enacted legislation.

Certain events do not need to be reported, include

1. Pension payments.

2. Investment earnings and losses.

3. When an income stream is closed because the interest is exhausted.

The ATO will provide guidance on reporting timelines. However, it is understood for SMSFs, that if all members within the fund have a Transfer Super Balance (TSB) of less than $1m, then the fund will lodge annually. If a fund has at least one member with a TSB over $1m, then it will need to lodge the TBA event within 28 days after the quarter.

The $1m TSB test will be determined on the 30 June of the prior financial year.

Tax and Christmas Party (cont’d)

 

What is considered to be entertainment costs?

Entertainment

Not Entertainment

Airline tickets

Gift hamper

Theatre/sporting tickets

Bottle of wine or whiskey

Holiday accommodation

Perfumes

Hired entertainers

Flowers

Gym membership

Pen Set

 

Tax tip: Avoid entertainment costs to employees and clients, as they are not tax deductible, subject to FBT and GST cannot be claimed.

 

Residential rental property deduction changes

 

From 1 July 2017, the following measures have been introduced:

1. Disallowance of travel expenses for residential rental properties to inspect, maintain or collect rent. Therefore, if you fly interstate to inspect your property or driving to your rental property to mow the lawn, then the costs incurred for the trip are no longer tax deductible.


2. Limitation of plant and equipment depreciation – you are only entitled to plant and equipment such as air conditioners, stoves, etc, that you actually paid for. If you purchased the property from a previous owner, then plant and equipment costs will form part of the cost base for CGT purposes.


Tax tip: The deductions apply to residential properties only.  Also you can still claim building allowances.  For this reason, we still recommend that you obtain a tax depreciation report for your property, provided it was built after 1985.

 

 

 

 

 


How to claim two deductions for the same vehicle

 

If you are a husband and wife couple and both salary and wage earners, then if you both have to undertake business related travel and are required to use your own car, then you can each claim car expenses even if you have only one car.


Where the car is jointly owned, the ATO accepts that joint owners use the car separately for income-earning purposes. Accordingly joint owners of a car can each elect to use different methods from each other in calculating and claiming their car expense deductions.


For example, one owner can use the cents per km method and the other can use the log book method.


If you do not wish to go through the onerous task of keeping a log book, then the ATO accepts that the 5,000 business kilometres limit under the ‘cents per km’ method applies per taxpayer in relation to a particular car. You are however required to show that the claim was calculated on a reasonable basis. Accordingly we recommend that you keep a travel diary of regular and irregular trips to support a reasonable estimate of the number of business kilometres travelled by the car during the income year.


If the car is not jointly owned, then you should consider a ‘declaration of joint ownership’ to establish that you are joint owners of the car for purposes of claiming car expenses.


Also where an individual owns or leases more than one car, under the ‘cents per km' method, the individual is able to claim up to 5,000 business kilometres for each car they own or lease. This is because the cents per km method is applied in respect of business kilometres travelled in a particular car by a taxpayer.  Therefore you can claim 5,000 business kilometres on your joint ownership car and also another car registered in your name.

 


 

Deduction claim for bundled phone and internet plans

 

If you have a bundled plan, you need to identify work use for each service over a four-week representative period during the income year. This will allow you to determine your pattern of work use, which can be applied for the full year.


Reasonable basis to work out work-related use, include:

· Internet – amount of data downloaded for work as % of total data downloaded by members of the household.

· Phone – number of or time spent on work calls as a % of total calls.

 

 



 

Christmas party for employees (including family members and clients)

 

On-site Christmas party

If you are having a Christmas party, holding it on the business premises on a working day is usually more tax effective than holding it off-site. Food and drinks (including alcohol) are exempted from FBT for employees with no dollar limit, but no tax deduction for GST can be claimed. Where family members (or associates) attend and the costs of each family member (or associate) is $300 (inc. GST) or more, there is FBT on the associate’s portion of food and drink, and a tax deduction and GST credit can be claimed on the portion of the costs.

 

Where the Christmas party is held on a working day at the business premises with only employees and clients including finger food, light meals and provided with no alcohol, then there is no FBT, the entire cost is tax deductible and a GST credit can be claimed.

 

Off-site Christmas party

Christmas parties held off the business premises are exempted from FBT where the cost for the employee and their associates is less than $300 (inc. GST) per attendee. However, no tax deduction or GST credit can be claimed.

 

Gifts to employees

 

Gifts provided to employees or their associates are normally subject to FBT, unless the minor benefit exemption applies. For a minor benefit exemption to apply, it must be provided to an employee or their associate on an “infrequent” or “irregular” basis and the cost is less than $300 “per benefit” (inc. GST). This is irrespective whether it is an entertainment expense or not (refer to table). However a tax deduction and GST credit can only be claimed if the item is a non-entertainment expense.

 

Gifts to clients

Gifts to a client are generally tax deductible as they are made for the purpose of producing future assessable income. However, if gifts are considered to be entertainment gifts, then no tax deduction or GST can be claimed.

 


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