1. Our News…..
- We’re moving to the ginger beer factory in July! Suite 22, 43-53 Bridge Road, Stanmore
- Video consultations: they’re in demand and work really well.
- Our services and qualifications.
2. The 2015 Federal Budget
- We reviewed commentary from our professional associations and the ATO.
- We discuss the 2015-16 Budget matters that we think may be of most interest to you.
3. Tax Tips and FAQ
- The end of the 2014-15 financial year is almost here, so now is the time to consider strategies to minimise your tax.
- Record keeping tips for arts businesses, sole traders and freelancers.
- Which records you can start organising now to improve your 2015 tax outcome.
1. Our News:
- We are moving in July
After seven years at Flourmill Studios, the time has come for a change. Whilst we love our offices, parking and accessibility has become a major issue and the rental expenses of the building have increased quite dramatically which would have affected our charge rates.
We are not going far!
The new premises are situated on the courtyard level of a refurbished Ginger Beer factory on Bridge St, Stanmore. There is a parking spot for clients and a Cafe in the complex. It is about as close to Stanmore train station as the old office was from Newtown train station and we think it is a more pleasant walk too!
What else is happening at Electra Frost Accounting?
Electra just sat her final Masters of International Taxation exam and is also completing a Diploma of Financial Planning. She returns to work on 19 June.
Joe did his final exam for his Masters of Commerce in Professional Accounting and was recently awarded a Diploma of Financial Planning.
Rex has completed his CPA program and Jessica is enrolled in a Diploma of Accounting and Business Administration.
We have plans to apply for a limited Australian Financial Services License this year; which will mean we can discuss things like superannuation, shares, income protection and life insurance in a more detailed way than we are currently allowed to; and provide vendor independent advice about the sorts of products on the market and how they work.
We have no plans at this stage to sell any financial products.
- Video Conference Consultations
Remember, we also offer consultations by video conferencing including evening and weekends.
If you have moved away, can’t get out of work easily or would just prefer to avoid the Sydney traffic and travel experience, why not do your tax with us over Skype video this year? We think it works really well.
For the best experience, we recommend a large screen (because we screen share and can work through your spreadsheet and tax return with you) and a fast reliable internet connection.
You may have paperwork at hand in your location that we discover is needed, thus saving you the trouble of going back to send it to us. You can even digitally sign your tax return on our portal so it can be lodged right away without needing to print any forms.
Talking face to face can make a big difference to your tax outcome. More tax deductions are discovered through conversation. So we hope to see you soon, in person or on cam.
- 2015-16 Federal Budget
- The immediate deduction for purchases of equipment under $20,000
The question we have been most frequently asked by our clients is about this budget announcement. Whilst this change has been announced, it has not yet been enacted which means that it cannot be guaranteed at this stage.
We believe that the measure will pass into law; however any decision to make purchases taking advantage of this proposed change carry a measure of risk.
Under the concession “Small Business Entities” are entitled to claim an immediate deduction for purchases of business related equipment which occur between 12/5/2015 and 30/6/2017 in the year of purchase.
Factors to be aware of:
On the face of it, we think this legislation is a very good thing. But it before you rush out making big purchases, you should consider the following issues.
How tax deductions work
A tax deduction works by reducing taxable income by a dollar; which creates an improvement in the tax estimate accordingly as roughly follows:
|Taxable Income ($)||Approximate benefit per $1 deduction claimed|
|18,201 to 37,000||About 20 cents|
|37,001 to 80,000||About 34 cents|
|81,001 to 180,000||About 40 cents|
Hence if you have an income of $40,000 and buy a piece of equipment for $20,000, the improvement in your tax return is roughly (3,000 x 34 cents) plus (17,000 x 20 cents) = $4,420, or about a 22% reduction in the cost of the equipment.
On the other hand; if your income was 80,000, you would receive approximately 34% effective reduction in the cost of the equipment.
What if my equipment purchase results in my business making a loss for tax purposes?
This is a very tricky issue. If you operate your business as a sole trader or in a partnership and the business operates at a loss, then that loss may or may not be ‘deductible’ against your other sources of income. In other words, there is no guarantee that a business loss will act to improve your tax outcome in the year it is incurred. We are waiting for the ATO to advise whether an exception will be available for businesses that result in a loss caused by deductions under this new small business tax break. You should request a consultation if you need help determining what is likely to happen for you, if your purchasing decision depends on it.
Regardless of whether the legislation passes or not, a good general principle to abide by is that any business equipment purchase should be made first and foremost because there is a benefit to your business. Tax deductions have much the same effect as buying goods for a discount. Whether you can get 20% or 30% off, the most important thing is whether the goods under consideration will repay your investment.
- Tax rate changed for small businesses
Private companies, trusts and partnerships with a turnover of less than $2 million will benefit from a tax reduction.
For companies, this means a reduction in the rate of taxation from 30% to 28.5%. As many small companies pay franked dividends to their shareholders; this may not actually provide much real benefit, but it certainly shouldn’t hurt.
For other entitled business entities, the concession will operate in much the same way as the old Entrepreneurs Tax Offset did; by reducing the tax on business income by 5%; capped at $1,000 per individual per year.
These changes are generally only likely to benefit businesses making a profit.
A couple of other measures have been proposed that should be of benefit to companies.
- FBT holiday for portable electronic devices from 1/4/2016.
- Immediate deductibility for costs of setting up a business such as accounting fees and legal advice.
- Other changes announced
- GST to be applied to overseas purchases of some digital services and goods.
- GST changes regarding sales and acquisition of going concerns (e.g. businesses and commercial premises).
- Capital Gains Tax changes for restructuring businesses.
- Streamlining of business registration processes with ASIC/ATO/ABR (we so hope so!).
- ASIC crowdfunding framework to simplify reporting and disclosure.
- FBT changes for not for profits and salary sacrifice arrangements.
- Medicare low income threshold increased.
- Low income supplement axed from 1/7/2017.
- Pensions and Super
- Changes to rules for accessing super for the terminally ill.
- Changes to how superannuation affects the level of entitlement to government pension.
- Assets test changes.
- Car expenses for the financial year ending 1/7/2016 and onwards
The 12% original value and 33% of actual expenses methods are being removed.
The cents per kilometre method is changing to 66c/km for all cars; which will make most car owners claiming under this method worse off.
The logbook method remains unchanged.
If you have a relatively new or expensive vehicle and use it mostly for business, you may well benefit from maintaining a car logbook. We hear you can get an app for it.
- People with HECS-HELP Debts
Those with HELP debts working or living overseas will still have to repay them if their worldwide income places them over the relevant income threshold.
Please keep in touch if you move overseas. Be well informed before you leave to avoid costly headaches upon your return. You may need to lodge a tax return or deal with other important tax issues you do not know about. Electra has international tax expertise and speaks with many of our overseas clients over Skype video.
- Working holiday tax changes from 1/7/2016
The law will change for certain visa holders who will now be required to pay tax at non-resident rates of at least 32.5% of their earnings – no tax free threshold.
- Human Services and Childcare
As tax agents we have no involvement in Centrelink, Family Tax Benefits and Childcare Benefits; so for clarification of any of the points below, you should consult with the Department of Human Services.
- A single childcare subsidy will replace child care benefit, child care rebate and assistance payments, effective 1/7/2017.
- Effective 1/7/2016, those under 25 will have to wait only 4 weeks before being entitled to receive income support – a softening from last year’s budget position of 6 months.
- Child care safety net given additional funding.
- Home based trial care.
- Subsidised childcare or FTB part A “no pay no jab” effective from 1/7/2016.
- No more “Double Dip” on Paid parental leave.
- Large family supplement axed 1/7/2016.
- Changes to parental income testing for youth payments from 1/1/2016 and onwards.
- Benefits cut for those outside of Australia from 1/1/2016.
3. Tax Tips and FAQ
(a) The end of the 2014/15 financial year is almost here, so now is the time to review what strategies you can use to minimise your tax:
#1 | Concessional Superannuation Cap
The concessional superannuation cap for 2015 is $30,000 per year for persons under 49 as at 30/6/14, and $35,000 for persons age 49 to 75. If you go over this limit you will pay more tax.
Note that employer super guarantee contributions are included in these caps. Where a contribution is made that exceeds these limits, the excess is taxed to the fund member’s account at their marginal tax rate.
In order to claim a tax deduction in the 2015 financial year, the super fund must receive the contribution by 30 June 2015.
#2 | Asset Depreciation
If your business is a Small Business Entity (turnover less than $2 million), then from 1 January 2015 the following tax concessions apply:
- Depreciating assets (including motor vehicles) valued at less than $1,000 will be immediately deductible
- Depreciating assets valued at more than $1,000 might be depreciated in one pool at a rate of 15% in the first year and 30% in future years (to be confirmed, see below)
- Small businesses to immediately deduct assets they start to use or install ready for use, provided the asset costs less than $20,000. This will apply for assets acquired and installed ready for use between 7.30pm (AEST) 12 May 2015 and 30 June 2017. (note: this is anticipated, but not yet in legislation)
- Assets valued at $20,000 or more (which cannot be immediately deducted) can continue to be placed in the small business simplified depreciation pool (‘the pool’) and depreciated at 15% in the first income year and 30% each income year thereafter. The pool can also be immediately deducted if the balance is less than $20,000 over this period (including existing pools). (note: this is anticipated, but not yet in legislation)
#3 | Tools of Trade / FBT Exempt Items
The purchase of Tools of Trade and other FBT exempt items for business owners and employees can be an effective way to buy equipment with a tax benefit. Items that can be packaged include Handheld/Portable Tools of Trade, Computer Software, Notebook Computers, Personal Electronic Organisers, Digital Cameras, Briefcases, Protective Clothing, and Mobile Phones.
If structured correctly, the Employer will be entitled to a full tax deduction for the reimbursement payment to the employee (for the equipment cost), and the employee’s salary package will only be reduced by the GST-exclusive cost of the items purchased.
#4 | Employee Superannuation Payments
To claim a tax deduction in the 2015 financial year, you need to ensure that your employee superannuation payments have CLEARED your business bank account by 30 June 2015.
For any last minute superannuation payments, we recommend that you arrange for a BANK CHEQUE made payable to your employee super fund prior to 30 June 2015.
Also, check that your payroll system is now paying the required 9.5% rate (up from 9.25%) from 1 July 2015.
#5 | Defer Income
Where practical or commercially viable, defer issuing further invoices and/or receiving cash/debtor payments until after 30 June 2015.
#6 | Bring Forward Expenses
- Purchase consumable items BEFORE 30 June 2015: These include stationery, printing, office and computer supplies.
- Pay business travel – flights and accommodation – in advance.
- Prepaid expenses up to 12 months – e.g. insurance premiums, interest expenses, subscriptions.
- Employee super contributions should be paid no later than 28 June if you want to ensure they are received by the super fund and tax deductible as at 30 June 2015.
#7 | Repairs & Maintenance
Make payments for repairs and maintenance (business, rental property, employment related items) BEFORE 30 June 2015.
#8 | Defer Investment Income & Capital Gains
If practical, arrange for the receipt of Investment Income (e.g. interest on Term Deposits) and the Contract Date for the sale of Capital Gains assets, to occur AFTER 30 June 2015.
The Contract Date is generally the key date for working out when a sale occurred, not the Settlement Date.
#9 | Motor Vehicle Log Book
Ensure that you have kept an accurate and complete Motor Vehicle Log Book for at least a 12-week period. The start date for the 12-week period must be on or before 30 June 2015. You should make a record of your odometer reading as at 30 June 2015, and keep all receipts/invoices for motor vehicle expenses.
#10 | Investment Property Depreciation
If you own a rental property and haven’t already done so, arrange for the preparation of a Property Depreciation Report to allow you to claim the maximum amount of depreciation and building write-off deductions on your rental property.
#11 | Private Company (“Division 7A”) Loans
Business owners who have borrowed funds from their company must ensure that the appropriate principal and interest repayments are made by 30 June 2015.
#12 | Year End Stock Take / Work in Progress
If applicable, you need to prepare a detailed Stock Take and/or Work in Progress listing as at 30 June 2015. Review your listing and write-off any obsolete or worthless stock items.
#13 | Write-off Bad Debts
Review your Trade Debtors listing and write off all Bad Debts BEFORE 30 June 2015. Prepare a minute of a Directors’ meeting, listing each Bad Debt, as evidence that these amounts were actually written off prior to year-end.
#14 | Small Business Concessions – Prepayments
“Small Business Concession” taxpayers can make prepayments (up to 12 months) on expenses (e.g. Loan Interest, rent, insurances, subscriptions) BEFORE 30 June 2015 and obtain a full tax deduction in the 2015 financial year.
#15 | Trustee Resolutions
Ensure that the Trustee Resolutions are prepared and signed BEFORE 30 June 2015 for all Discretionary (“Family”) Trusts. Please contact us for more information about these resolutions.
(b) FAQs – record keeping and claiming deductions:
- How do I record my deductions to get the best tax outcome?
Preparing information for your tax return can often be time consuming and a little bit daunting. It helps to make sure your time is spent most productively to help us to help you.
The general rule about deductions is that if you spend money on something to help you perform your business or earn a salary, then some or all of that expense might be tax deductible.
What helps us to understand and you to remember – is a brief description of what you actually purchased and what for. This is often far more important than categorising the expense.
For example, a visual artist might attend a seminar on light and colour. There’s a clear connection between the seminar and the job she does for a living. Writing “seminar” doesn’t explain the connection but writing “seminar on light and colour” does.
When preparing your records, do not spend time on worrying whether to record an expense because it might not be deductible. Just tell us what you did and why so we can help you work that out. One of the main ways we can help you is by analysing your expenses to ensure that you claim deductions you are entitled to.
- Per Diems, Travel Allowances. Fact and Fiction
If you earn income as a freelancer under your own ABN or through a partnership, there is no such thing as a ‘per diems deduction’, or daily rate that you can claim because you worked away from home. You will need some form of written evidence of your actual expenditure on accommodation, meals and incidental costs of BUSINESS travel, and possibly also a Travel Diary.
If you are a salaried employee AND in receipt of a bona fide travel allowance that is separately identified on your payment summary, then you MAY be able to claim a deduction ‘without receipts’ to the equivalent amount of your allowance, or more if you genuinely spent more, up to a limit, if you had to travel away to conduct work for your employer.
In either case we recommend that you keep a travel diary each day that briefly describes where you were; what you did, how it relates to work or business and travel, meals and accommodation expenses. Do this by, for example, recording the dates and activities in the Travel Diary as “Canberra Trip August” and in the business expense schedule using the category “Canberra trip” and descriptions such as meals or flights in the description column.
- Artists Residencies and Grants
If you are lucky enough to be invited to an artist residency which means you travel away from home, you may be able to claim some of the costs associated with the residency. Usually the information on how you acquit your grant is very useful for calculating your tax deductions but not all expenses used in acquitting your grant will be tax deductible.
It is very important to maintain a travel diary showing the duration of the residency, the places you visited and the things you did.
In general, things like groceries and ordinary costs of living will not be tax deductible. On a short stay or while travelling away from the location of the residency, meal costs at restaurants or cafes, research trips and transport costs may be tax deductible. However on longer stays eating out close to the location of the residency is unlikely to be tax deductible, just as eating out close to home is not normally tax deductible.
- Home Office Expenses: Claiming Rent or Home Loan Interest
If you work from home for work or business, there is a chance that you may be entitled to claim a portion of your rent or home loan as a tax deduction. It is much harder for employees to do this and for tax purposes, an employee is someone in receipt of a payment summary (note: PSI rules may prevent some ABN holders from claiming home office occupancy expenses too).
Whether you are freelancing or employed, to be able to make a claim; you need to satisfy a test which has four elements:
- There is a dedicated room (very occasionally an area might qualify) that is set aside to conduct work or business.
- The room is not readily adaptable to a private or domestic purpose. A good example is a doctor’s surgery, hair dressing salon or a soundproofed recording studio.
- The room is used exclusively or almost exclusively for business purposes.
- The room is used to conduct client visits, if you clients visit you.
These four points should be supported by factual evidence consisting of a floorplan which shows how much of the home is taken up by the home office (i.e. 15 sqm out of 100sqm), a rental ledger or statement of home loan interest and, lastly, photographs of the home office or studio.
If you are an employee, it is not enough to satisfy these four conditions. You must also show that you work from home as a matter of necessity rather than convenience and this should be evidenced by a letter from your employer stating this is true.
For homeowners there is a further consideration which is that if you elect to claim some of your home loan interest you may have to pay an apportioned amount of Capital Gains Tax when you sell the property. Because of the rises in house prices over the last twenty years most people elect not to claim home loan interest as a tax deduction for their home studios, however the ‘interest deductibility test’ may still expose you to capital gains tax. This is something that can be discussed in consultation.
- Research Costs: Shows, Downloads, DVDs, Newspapers, Films and Concerts
If you are involved in arts, media, music or the creative industries, chances are that you will attend shows, exhibitions or download music which is related to how you earn your living.
To get the most out of this at tax time, it is really helpful if you can tell us where you went, what you did and how it connects.
For example, if you work in film and went to see Lords of the Rings to see the new CGI techniques because they impact on the film you are working on – then the cost of going to the film is likely to be tax deductible. If you went with a friend and picked up both tickets, then only your ticket will be tax deductible generally.
Where a connection is vague, such as a musician downloading a song for “inspiration”, it may be defendable to claim half the cost of the download but not all of it.
Where you are unable to explain what you went to see or why you went to see it, at best, only a claim for half the expense may be included and quite often it is not possible to include it at all.
To get the best outcome, please describe in your list of expenses what happened in a way that links your research expenses to how you make a living.
- Car Expenses using the cents per km method
Anyone who drives a car for work or business may be entitled to claim car expenses and for those that can, the standard of proof required by the Tax Office is very generous compared to the strict requirements to claim other types of deduction.
If you are an employee or a freelancer earning most of your income from a single client, you are not able to claim the costs of travelling to and from work unless, under certain circumstances, you need to carry bulky equipment and tools.
If you have to travel to see clients or conduct business, then you may be able to claim a deduction under the cents per kilometre method by making a reasonable estimate of the number of kilometres you travelled, to a maximum of 5,000km in a year. This claim is generous at 66 cents per kilometre which for most people means an improvement in their tax outcome of potentially up to $1,000 or more.
If you travel by car and use the cents per kilometre method, thinking about your car trips can be very productive. You can make a reasonable estimate by going through your diary and using Google Maps’ Get Directions’ to calculate the distances. Prepare a ‘from and to’ list of locations, calculate the return kms and number of trips, and show us your list. If you pull a single number ‘out of the air’ the ATO can demand you to explain how you worked it out, so we must ask you to give us the break down. We may even remind you of more trips you can claim!
- Using Excel or other spreadsheets to record expenses
Most people are now very familiar with spreadsheets. But every year, a few people end up paying higher accounting fees that could easily have been avoided if they had not created more work for us that we would prefer not to do either.
Know how to help us help you keep your fees to a minimum.
For sole trader income and expenses, if you use Excel rather than an accounting software package, please use the templates we provide freely on our website under Resources – Checklists and Templates. They are designed to comply with the Tax Office legal requirements for ABN holders to maintain their records in a compliant record keeping system.
Don’t colour code things, hide columns or leave gaps. It is very easy for us to sort data by category, description and date. If you need to tell us something, use the comments field to do it. Feel free to modify the templates or adapt them to your Excel/CSV banking transaction downloads – but please use our headings to record all the right details for tax purposes.
In the amount column only put a number, not a text description like 200 Euros. If you have an overseas transaction write the currency in the comment field if you do not know how to apply Excel currency formatting. If you have a lot of overseas transactions, it may be helpful to call and speak to Joe or Electra before compiling your spreadsheets.
Lastly, enter the dates in the format 12/12/2015; do not use decimal points because the spreadsheet won’t understand that it is a date.
- Is it okay to estimate expenses or provide totals?
It is hardly ever okay to do this. If you are in business then all deductions must be backed by written evidence showing what was purchased, how from, when and for how much. That information needs to be compiled into a complying record keeping system such as our Excel templates, Xero, Saasu, Quickbooks or MYOB.
Presenting us with a list of totals doesn’t meet those conditions and will often result in either your being asked to reprepare your records or your return excluding all deductions where there is any doubt about what they were or whether to include them.
There are a very few limited expenses where it is okay to provide an annual total; such as internet and mobile phone costs if you are paying a fixed monthly fee and always pay it on time.
Employees are in much the same boat as freelancers and even though there are a few exceptions it is always much safer to record your expenses as incurred than relying on an exception that may not practically apply. The biggest and most costly mistake made by employees is to ignore their travel expenses under the assumption they are receiving a travel allowance.
- Audits and a dedicated business bank account
Especially if you are a freelancer or in business, it is highly recommended that you maintain a separate bank account to pay your expenses from and receive income from your clients. In fact, we cannot stress enough to sole traders the importance of separating business from personal.
Even if you cannot get a business credit card, use a dedicated credit card and/or a Visa or Mastercard debit card facility.
Using prepaid cards for overseas work travel expenses is also recommended (export transaction data to an Excel spreadsheet, converted to AU$).
If the Tax Office take an interest in your affairs, they are likely to ask for copies of accounting records and business bank statements. If your business spending is muddled in with your private expenses, then it can be a big job to identify what is personal and what is business. Your personal spending habits are none of their business, either.
As we prepare business schedules for your tax return, you may need us to evaluate the integrity and compliance of your accounting system and advise you. If your opening balance plus business deposits minus business outgoings equals the closing balance shown on the bank statement, then you can more easily prove to an ATO auditor that your accounting records are complete and reliable and therefore should not be fully audited. This otherwise straightforward reconciliation to prove your figures stack up is really hard to do if all your personal banking is in there too.
We want you to save tax, reduce accounting fees, save time AND not get audited. So please contact us before submitting your annual tax questionnaire if you are not sure how to best organise your income and expense records.
Going forward from 1 July:
- Perhaps you should get set up on cloud accounting software – such as Xero, MYOB Essentials, Quickbooks Online or Saasu.
- Check out their websites and their trial versions first, and let us know via the link below if you want us to suggest a product to suit your business. (we do not resell software or seek commissions)
- As tax accountants we understand all accounting software and can give you some basic training. However, most of our clients manage the bulk of their own recording and coding.
- We may suggest some external bookkeepers for specialised set-ups and more hands on work, depending on our available staff.
—— end of newsletter ——
Please note: If you need to discuss your matters with an accountant – Electra (from 19 June), Joe (available now) or Rex (from 22 June) – please contact us by email business at electrafrost.com.au
We truly appreciate your business, and we are grateful for the trust you place in us. We look forward to being of service to you again soon.
Please keep an eye out for our 2015 Online Tax and BAS questionnaires, to be emailed on 30 June. (or email us if you would like to be added to our mailing list)
Electra Frost – Managing Director
Joe Sharpe – Accountant, Tax Agent
Rex Ting – Business Services Accountant
Jessica Longhurst – Office Administrator
Electra Frost Accounting
JULY ADDRESS: Office 22, 43-53 Bridge Road, Stanmore NSW 2048
CURRENT ADDRESS: 403 Flourmill Studios, 3 Gladstone St, Newtown NSW 2042
MAIL: PO Box 529 NEWTOWN NSW 2042
PHONE: 02 9516 3382
FAX: 02 9519 2808
Liability limited by a scheme approved under Professional Standards Legislation