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ATO Investigation of Lifestyle Assets

Australian Taxation Office Investigation of Lifestyle Assets

The ATO is obtaining information from data providers for the 2014 and 2015 financial years to identify taxpayers who held insurance policies for lifestyle assets such as marine vessels, enthusiast motor vehicles, thoroughbred racehorses, fine art and aircraft.

The ATO will match this data with income tax returns (including capital gains tax schedules), Business Activity Statements, Fringe Benefits Tax returns and self-managed superannuation fund returns. If the information reported on these returns indicates that the taxpayer might not have sufficient income to fund these lifestyle assets an audit might be triggered.

If you are one of the rare taxpayers at risk from such a tax audit, you might consider voluntary disclosure. The ATO is usually much more lenient with penalties when there is voluntary disclosures.

By one means and another the tax net continues to tighten.

 

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.

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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.  

 

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!

 

Super..super...where are you...?

Super...super…..where are you....?

Do you want a share of $16 Billion of lost super available in Australia?

As at 30 June 2017 the following regions had unclaimed and lost super to the value of:

• Australians had over 16 Billion Queenslanders had $3,127,500,773 lost super – NSW had the most of any state with over $5 Billion

• 4730 postcode (Longreach) has 653 accounts to the value of $2,431,556

• 4725 postcode (Barcaldine) has 219 account to the value of $1,075,332

• 4472 postcode (Blackall) has 267 accounts to the value of $1,054,004

• 4735 postcode (Winton) has 218 accounts to the value of $528,787

• 4724 postcode (Alpha) has 78 accounts to the value of $458,314

• 4726 postcode (Aramac) has 75 accounts to the value of $274,471

• 4727 postcode (Ilfracombe) has 52 accounts to the value of $272,187

• 4732 postcode (Muttaburra) has 35 accounts to the value of $90,653

• Find out how much lost and unclaimed super is in your postcode            

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"Honey, lets go visit the rental property....quickly"

Are you a rental property investor who  previously claimed expenses for your rental property?  Well there are changes afoot following recent 2017/18 budget announcements.

Deductions for travel-

Deductions for travelling to a residential rental property will no longer be allowable for investors after 1 July 2017. This change relates to individuals travelling to collect rent, maintain the property or complete an inspection, leaving investors only a short period before 30 June to claim a final deduction. An example of the types of deductions previously able to be claimed are: plane fares, hotel fees, motor vehicle expenses.

Investors will still be able to engage third parties such as real estate agents for property management services. This expense will remain deductible.

Deductions for depreciation of plant and equipment-

The recent Federal Budget has removed the ability to claim a tax deduction for depreciation on the fixtures purchased with a residential rental property. The new restriction applies for properties settled after 9 May 2017.  Plant and equipment depreciation deductions will be limited from 1 July 2017 to amounts actually outlaid by a rental property investor. This limitation relates only to residential property investors.

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Super Ready for Super Reforms

 

Are you aware of Superannuation changes 1 July 2017

The Government superannuation changes have been subject to ongoing negotiation for over a year – often quoted as the most significant reforms to superannuation in a decade.  The reforms have now been passed which means many changes to the super system will take place from 1 July 2017.  Most commonly talked about are:

  • The annual non-concessional contributions cap will reduce from the current level of $180,000 to $100,000 (and will then increase in line with the indexation of the concessional contributions cap). 

o   However, anyone fortunate enough to be able to make a significant contribution before 30 June 2017, can still contribute up to $540,000 under the 3 year bring-forward rules, provided they meet the existing conditions.

  • The new annual concessional contributions cap will be limited to $25,000 for all individuals regardless of age.

o   It is not all bad news though, as from 1 July 2019 you may increase your concessional contribution cap by carrying forward your unused concessional caps amounts if you have a total superannuation balance of less than $500,000.

Read more…

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