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Strategy Updates

Strategy updates
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The $11.1bn small business tax shortfall

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Last month, the ATO released statistics showing small business is responsible for 12.5% ($11.1 billion) of the total estimated ‘tax gap’.

These new figures give visibility to tax compliance issues within the small business sector and indicate where we can expect ATO resources to be focussed now and in the future.

The tax gap estimates the difference between the tax collected and the amount that would have been collected if everyone was fully compliant with the law.

Rental property expenses - what you can and can’t claim

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It’s not uncommon for landlords to be confused about what they can and can’t claim for their rental properties. What often seems to make perfect sense in the real world does not always make sense for the Australian Tax Office (ATO).

In general, deductions can only be claimed if they were incurred in the period that you rented the property or during the period the property was genuinely available for rent. This means a tenant needs to be in the property or you are actively looking for a tenant. If, for example, you keep the property vacant while you are renovating it, then you might not be able to claim the expenses during the renovation period if it was not rented or available for rent during this time (there are some exceptions to this general rule). There needs to be a relationship between the money you make and the deductions you claim. Here are a few common problem areas:

Serviceability assessment is a crucial aspect for lenders when applying for a loan.

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One of the most crucial aspects when applying for a loan is the serviceability assessment. A lender will assess your income versus expenses to determine that you can afford the proposed loan repayment. It sounds like a simple process but is quite complex.

Income is scrutinised with regards to its consistency post settlement. Each lender has slightly different policies. Generally, the more inconsistent an income the greater the scrutiny. For example, bonus income is usually averaged over 2 years and reduced by 20%. Likewise, expenses are assessed in a very conservative approach. For example, credit card repayments are calculated using the card limit at 3.8% (previously 3%). The proposed loan repayment will be calculated using an assessment rate.

Why the Government does not want your business accepting cash payments of $10,000 or more

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From 1 January 2020, the Government intends to restrict the value of cash payments a business makes or accepts to amounts under $10,000. Ignoring the limit will become a criminal offence with penalties of up to 2 years in prison and/ or $25,200*.

Payments of $10,000 or more will need to be made electronically or by cheque.

We’ll, easy enough you say, just break it up into smaller amounts! But, the law has already thought of that. The cash payment limit will apply to the total price of a single supply of goods or services, regardless of whether the price is split into a series of payments over time. If a customer is making cash payments over time, for example instalment payments on a car, the total cash component cannot equal or exceed $10,000 – payments above this amount will need to be made using alternative payment methods.

Proof of life Certificates required for overseas pensioners

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One of the stranger pieces of legislation to be introduced into Parliament last month is an attempt to ensure that overseas welfare recipients over the age of 80 are in fact, alive.

There are approximately 96,000 people permanently living overseas who currently receive an Australian social security payment. The majority of these receive the age pension. At present, the system relies on a relative to advise Services Australia that the recipient of the payment has passed away for payments to cease. Government data suggests that, “there is a disparity in the death rate of pensioners aged 80 years and above overseas, compared to pensioners in Australia.” So, either living overseas is good for your health and people are living longer than Australian norms suggest, or deaths are simply not being reported. The Government is betting on the latter.

Confusion over personal income tax changes – What are you really entitled to?

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The recent income tax cuts that passed through Parliament do not mean everyone automatically gets $1,080 back from the Government as soon as they lodge their income tax return. The Australian Taxation Office (ATO) has been inundated with calls from taxpayers wanting to know where their money is and how they can access the $1,080 they now believe is owing to them.

Are you up to date with changes made to the First home super saver (FHSS) scheme?

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It appears as though the tide could be turning in more ways than one for the Queensland property market. With more evidence mounting that the market has somewhat bottomed out in a number of residential areas, interest rates at record-lows, more first home buyers are making their way out and about to snatch up their dream property while they can.

60,000 Tax Cheat Tip-offs

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Tip-offs to the Australian Taxation Office (ATO) have reached an all-time high with close to 60,000 tip-offs received between June and May 2019 – almost double the number of the previous year. The ATO thinks the number of tip-offs will reach around 70,000 for the full financial year.

Common problem areas that people feel obliged to report include suspected tax evasion, illegal phoenix activity, and the black economy. More than half of all tip-offs received were for suspected under reporting of income or about the cash economy, for example businesses demanding cash from customers or paying their worker's cash in hand.

Single touch payroll exemption for directors and family members

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The ATO has provided a concession from single touch payroll for payments by small employers to closely held payees.

Single touch payroll (STP) was extended to cover all employers on 1 July 2019. For directors of their own company or for family businesses employing family members, there are some practical problems with STP - sometimes they don't know exactly what their salary or wages are for the year until just after the end of the financial year. STP however demands that payments are reported to the ATO in real time.

Super, insurance and exit fees: The 1 July Changes

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From 1 July 2019, new laws prevent superannuation providers from eroding member balances with unwanted or unnecessary insurance and exit fees. Plus, inactive accounts with low balances will be moved to the ATO to try and unite the unclaimed super with its owner.

These changes do not apply to self-managed superannuation funds or small APRA funds.

5 last minute tax return tips for the end of financial year

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If you haven’t looked at the calendar for a while, you might be a little bit surprised to see we’re now in the final stretch of the 2018/19 financial year. The EOFY sales are in full swing, and the ringing of accountant’s phones across the country is starting to pick up at a rapid pace.... It’s tax time! If you’re one of the handful of people who are confidently across their finances and tax obligations, well done, the end of financial year will seem like just another month. For everyone else though, now is the time to really kick your EOFY planning into full gear, gather up all those receipts covered in 2018’s dust and study the tax legislation for every deduction possible before the 1 July deadline.

ATO increases rental deduction audits

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In the 2017-18 financial year, more than 2.2 million Australians claimed over $47 billon in deductions and the Australian Taxation Office (ATO) thinks that is too much - one in ten is estimated to contain errors.

4,500 audits of rental property deductions will be undertaken this year with the focus on over-claimed interest, capital works claimed as repairs, incorrect apportionment of expenses for holiday homes let out to others, and omitted income from accommodation sharing. Deliberate cases of over-claiming are treated harshly with penalties of up to 75% of the claim. In one case exposed by the ATO, a taxpayer had to pay back $12,000 in claims for deductions against a holiday home that was not genuinely available for rent and was blocked out during the holiday season. In another, a taxpayer paid back $5,500 because they had not apportioned their rental interest deduction to account for redraws on their investment loan to pay for living expenses.

Tax and Superannuation with a Labor Government

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A Labor Government on Tax & Super

Tax on investment property

In general, taxpayers are able to deduct from their assessible income any expenses they incur generating or producing that income. An investment is negatively geared when the cost of owning the asset is more than the return. Negative gearing is not limited to property but can apply to other assets such as shares. In 2016-17, Australians claimed $47.5 billion in rental deductions against gross rental income of around $44.1 billion.

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