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Amendments to Instant Asset Writeoff


The increase to the instant asset write-off is now law. From 7.30 pm on 2 April 2019 small business entities can access an immediate deduction for depreciating assets costing less than $30,000. From 1 July 2018 to 29 January 2019 the threshold is $20,000; from 29 January 2019 to 2 April 2019 it is $25,000.There are three different thresholds in the one financial year.

Medium business entities (those with turnovers between $10 million and $50 million) can now access the instant asset write-off for depreciating assets costing less than $30,000. There are some complications with medium size businesses so speak to your accountant before purchase.

The increase in these threshold s can now be taken into account for tax planning purposes but the usual caveat applies. Buy an asset because it will benefit your business and not because of the tax saving. The tax savings should be the icing on the cake. Speaking of cake you cannot have your cake and eat it too. By claiming the instant asset write-off you forego the depreciation you could otherwise have claimed in following years.

Please contact the office to make a tax planning meeting today. 

Cryptocurrency - An Auditors Perspective

 

 

Cryptocurrency is digital money.  The most important difference between traditional money transactions and cryptocurrency transactions is that cryptocurrencies eliminate banks. The cryptocurrency itself becomes its own bank. One other thing it is necessary to know is that a "blockchain" is the encrypted record of a set of transactions, equivalent to a ledger in traditional accounting.

I know next to nothing about cryptocurrencies. I do not have a licence to provide advice about them and a jolly good thing too considering the depth of my ignorance. Therefore please do not take anything I write as advice. I do not want a rap over the knuckles or worse from the regulators and I do not want to be sued. All I want is to put my auditor's hat on and ask some questions.

 

What is the product?

Products come in two forms, goods and services. I feel comfortable in eliminating goods as a product. I have never heard of a cryptocurrency offering bread for sale or mattresses or Mediterranean cruises or any other tangible product. Therefore it must be a service and that service must be so valuable that a single bitcoin (for example) can be worth thousands of dollars in the marketplace. What could this income-generating service be? Cryptocurrencies do provide a transaction service which is said to be safe and secure. This might well be true. (The auditor in me says "verify"). Even if it is true, the transaction fees I have seen quoted are trivial and much smaller than the fees charged by banks. At this stage of my learning process it is not possible for me to believe that such negligible fees could cover costs, much less generate enough income to make cryptocurrencies so valuable. In fact cryptocurrencies themselves do not make such a claim.

Read more…

The Englishman's Holiday


We might take a look at cryptocurrencies soon. This is a complicated subject about which I have many questions but as yet not many answers. It can be difficult to identify the risks and weaknesses in any financial system, much less complicated ones. To demonstrate, let's consider, not for the first time, the case of The Englishman's Holiday. This is a problem involving a very simple set of facts, much simpler than cryptocurrency facts, yet it  still manages to intrigue. It demonstrates that in economics nothing is simple.  Here is the problem.

There once was a very upright and very proper Englishman who regularly took his summer vacation on a tiny agreeable Aegean island. The Englishman had returned to the island so many times that his credit worthiness had been established beyond any possible doubt. There was absolutely no chance that this Englishman's bank would fail to honour his cheques and indeed all of them had always been honoured promptly.

Since the Englishman's credit was so sound the islanders were totally happy to allow him to pay by cheque with the certain knowledge that they were good cheques. Indeed, so well-known and trusted was the Englishman on this tiny island that the islanders were happy to accept the Englishman's cheques from each other. For example, if the restaurateur wished to pay the grocer partly with a cheque he had received from the Englishman in payment for a meal, the grocer was happy to accept the cheque. The grocer was then able to buy fuel with the cheque and so on. In this way the cheques circulated around the island forever and were thus never returned to the Englishman's bank for collection.

Who paid for the Englishman's holiday?

I will allow a little time in case any reader wants to offer his or her answer to the question. Then I will say a few words about cryptocurrencies.

 

Drought Relief Assistance Scheme


The Queensland Government has announced further assistance for graziers affected by drought. At a minimum you must be a member of the grazing industry, have a property in a drought-declared area and operate in Queensland. There are other eligibility criteria.

Subsidies or rebates of between $20,000 and $40,000 per property might be available.                           

The forms of assistance eligible for funding include freight subsidies to transport fodder or  water and a rebate of part of the cost of purchasing and installing water infrastructure for animal welfare needs.

The rules regarding eligibility and funding are quite restrictive but it is worth spending a few minutes to assess whether you meet all the criteria.

You can find more details online Drought Relief Assistance Scheme QLD 

Please give us a call if we can be of any assistance.

Single Touch Payroll - Coming Ready or Not

Single Touch Payroll (STP) begins for most employers on 1 July 2019. From that date, all employers must send their payroll data electronically to the ATO  every time they pay employees.

If employers do not presently have payroll software the ATO will not force them to purchase it but this does not mean that these employers will be exempt from the reporting requirements. The ATO has not yet decided on the reporting options for these employers but it will provide more information in the near future. Some possible options might be a portal or a phone app, a payroll service or the introduction of inexpensive payroll reporting software (under $10 per month). Whatever the options it appears that they all involve the digital world. Photocopying a manual wages book and posting it to the ATO every week is not likely to cut the mustard.

Employers must report not only the current pay run but also year to date gross values of wages, allowances, deductions and PAYG withholding tax for each employee.

Employers must also report all employee superannuation liabilities. The ATO can check these with information from superannuation funds. Presently employers can fly under the radar to some extent if they do not pay super guarantee on time. It appears that from 1 July this will not be possible. The ATO net is tightening.  The ATO will also be able to identify employers who do not remit PAYG Withholding payments on time. Recent estimates indicate the about $2.5 billion per year is not remitted.

Read more…


Fake tax agent scam alert

Currently scammers are coercing victims into parting with money by pretending to be the victim's tax agent. 

The scammer tries to convince the victim that he or she owes money to the ATO which must be paid immediately to avoid the issue of an arrest warrant. The ATO has warned taxpayers that it "will never demand immediate payments, threaten with arrest or request payment by unusual means such as iTunes vouchers, store gift cards or Bitcoin cryptocurrency".

You would think that no-one would fall for such an obvious scam but people do. Last month (November 2018) the ATO received 37000 reports of scam attempts. 

The total money scammed for the month has not been reported yet but one person was conned out of  $236,000.  I have received calls from scammers who were very convincing. 

If you receive any call placing undue pressure on you to make immediate payment, contact your tax agent before you part with any money.                  

 


 

If you are a local or state government employee, you will typically be required to contribute a mandatory percentage of your wage to superannuation (usually about 5-6%) which is matched by an employer contribution.  In previous years, unless you have been salary sacrificing this amount, this has been regarded as a non-concessional contribution meaning you cannot claim a tax deduction for it and the super fund does not pay tax on the contribution.

Due to changes made in 2017, all employees can elect to treat these contributions as concessional, meaning you can claim part or all of the contributions made in 2017-18 as a tax deduction on your personal tax return and the super fund will pay tax at a rate of 15% on the contribution.  If your own marginal tax rate is greater than 15%, there is a clear tax advantage.  If you are already salary sacrificing this contribution from your pre-tax salary, these changes will not benefit you because you are already getting the tax advantage.

To claim a deduction for personal super contributions, you need to make the contribution to a complying super fund or a retirement savings account so you need to check eligibility with your fund.  For example, if your contributions are going towards a defined benefit account, they will probably not be eligible.

Other Conditions apply:

  • The tax-deductible contributions are capped at $25,000 from all sources.  This means that the total of your employer contributions, any salary sacrifice you make and your voluntary contributions cannot be more than $25,000 for the year.
  • There are age limitations on super contributions.  People over 65yo must meet a work test to contribute to superannuation.  People over 75yo are not permitted to make additional personal contributions.
  • You will need to complete a declaration to give to the super fund advising you intend to claim a tax deduction.  You will need the acknowledgement of the notice from the super fund before claiming the tax deduction.  This is a simple form but is important because without it the tax deduction is not valid.

For those government and Council employees not currently part of a salary sacrificing regime, this is a great opportunity to claim a significant tax deduction. 

As always, please seek advice from your accountant, super fund or financial planner before proceeding.

Do you own vacant land?

Do you own vacant land? If so, be aware of the proposed changes to the law which will deny deductions for loan interest, rates and other holding costs from 1 July 2019.

Presently in most but not all circumstances, owners of vacant land can claim interest and rates as an income tax deduction (rare) or more commonly as part of the cost base for capital gains tax purposes when the land is sold. If the proposed changes pass through both houses of parliament and receive Royal Asset, these concessions will be lost. There is no need to panic at this stage because the commencement date is a year away and the proposed changes might not even become law. However it is worth monitoring. Vacant land that was purchased twenty years ago, for example, could easily have accrued costs in excess of $20,000. These costs might not be available to reduce a capital gain if the land is sold after 30 June 2019. If you are considering selling it might be beneficial to do so before 1 July 2019. Remember that it is the date of signing the contract that counts and not the settlement date.

As always, we recommend you seek advice from your trusted professionals before selling or buying investments or assets.  

 

Innocent V Not Guilty

Innocent and not guilty are different beasts when it comes to tax. This has been highlighted recently in the case of Ward v FC of T  in the Administrative Appeals Tribunal (AAT). Mr Ward was levied $209,250 excess contributions tax which virtually obliterated his superannuation savings over his lifetime. Deputy President Gary Humphreys made this closing comment.

The strict application of the law to Mr Ward's situation produces an outcome which is harsh and unfair. Setting out only to protect his and his wife's superannuation nest egg after a lifetime in low paid employment, and acting in good faith with professional advice, Mr Ward has unwittingly forfeited to the Tax Office the entire proceeds of his superannuation savings. Had the original investment in BT Super for Life been made just days earlier than it was, no excess contributions tax would have been payable. As it transpired, he has suffered a penalty of 19,527 percent of any "tax advantage" (his advisers' calculation), an outcome which cannot be regarded as conscionable.

Mr Humphreys could not change the law but he went so far as to urge the Commissioner to reconsider the fairness of enforcing the penalty. He also made a commendation to the Minister for Finance to consider an act of grace payment.

This case demonstrates once again that a taxpayer cannot rely on the fact that he is free of guilt. The full 84 page decision (which is quite interesting) can be found at Ward and Commissioner of Taxation (Taxation) (2018) AATA 1519 (7 June 2018).  

A Super opportunity for tax savings


 

Looking for an opportunity to minimise your tax liability for 2017-18?

Increasing contributions to superannuation is a great opportunity, but you will need to act fast - the clock is ticking.  The government made changes in 2017 which now allow anyone to claim a personal super contribution as a tax deduction, regardless of their employment status.  Prior to 1 July 2017, personal contributions to super were only able to be claimed as a tax deduction for those people predominantly self-employed.  

There are conditions to be aware of:

  • The tax-deductible contributions are capped at $25,000 from all sources.  This means that if your employer is making contributions for you under the superannuation guarantee, the total of the employer contribution and your personal contribution cannot be more than $25,000 for the year.
  • Any contribution to super is preserved until you meet a condition of release.  In most cases (except some very exceptional circumstances), the condition of release is reaching preservation age (55 years or older depending on your date of birth) and being retired from work.
  • Even though you will enjoy a tax deduction on your individual tax return, the contribution will still be taxed at a flat rate of 15% in the super fund.  These means that this strategy may not be effective if your own marginal tax rate works out to be 15% or less.
  • Tax deductible super contributions cannot be used to create a loss, therefore if you are in business, you need to assess your expected net profit before deciding on the contribution amount.
  • The contribution must be received by the super fund by 30 June 2018.  Please note that 30 June is a Saturday, so this date is really 29 June.  You will need to allow for time to process electronic transfers and for the fund to process the claim so don't leave it too close to the end of year.
  •  There are age limitations on super contributions.  People over 65yo must meet a work test to contribute to superannuation.  People over 75yo are not permitted to make additional personal contributions.
  • You will need to complete a declaration to give to the super fund advising you intend to claim a tax deduction.  This is a simple form but is important because without it the tax deduction is not valid.

If you are currently in a salary sacrifice arrangement with your employer, this can continue as it has the same tax effect as making a personal contribution.

As always, we recommend you seek advice from your accountant, financial planner, or super fund before making a contribution.  Just keep in mind the countdown to end of financial year is underway, and contributions after 30 June cannot be treated retrospectively.

Happy End of Financial Year!

 

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