Category: Accounting

Before buying a company car for your business, it is very important to take into account any possible motor vehicle fringe benefit implications. Here are a few things to consider before signing on the dotted line.

What is a fringe benefit?

Put simply, a fringe benefit arises when an employer provides an employee with a non-monetary benefit. Either in addition to or instead of monetary remuneration. It is difficult for the ATO to tax these benefits under the income tax legislation. Therefore, these benefits are assessed under the Fringe Benefits Act 1986. Any Fringe Benefit Tax (FBT) that arises, is payable by the employer, not the employee.

FBT legislation defines the term ‘car’ in a very specific way. As a general rule, fringe benefit may arise if a car is made available for the private use of an employee by the employer. There are several considerations a business owner should be aware of prior to making a new vehicle purchase.

The vehicle’s purpose by design

Regardless of how you plan to use the new vehicle, it is important to know the vehicle’s purpose by design. Is it a commercial vehicle designed to carry goods? Private vehicle for non-business use? Or somewhere in the middle?

A variety of factors assist in this matter including:

• How is the vehicle marketed?
• What are the vehicle specifications?
• What is the load and passenger carrying capacity?

There are no fringe benefit implications for vehicles that are not designed to carry passengers. Such as, trucks, vans, taxis and utilities that are designed with greater than one tonne carrying capacity. Any personal use of these vehicles by employees, employee’s partner and/or other associates, satisfies the private use exemption rules. Private use is limited to travel between home and work, incidental private travel between home and work and other private use that is minor, irregular and infrequent.
However, for vehicles primarily designed to carry passengers, there are more compliance requirements in place. This is to determine actual business use and make any private use subject to FBT.

Private Use Exemption

The ATO has recently proposed changes to the private use exemption in the form of compliance guidelines (PCG 2017/D14). The guidelines would deny access to the exemption should due care is not taken during the purchase process. Even for the most commercial vehicle purchases.

This notably includes the following requirements:

• Non-business accessories should not be fitted to the vehicle. These are accessories that are not required for the particular needs of the business operations served by the vehicle. For example, alloy wheels, window tints, spoilers, custom plates, paint protection etc.
• The purchase price cannot exceed the Luxury Car Tax threshold. This is currently $65,094 for new vehicles.
• It is not provided as part of a salary packaging arrangement to the employee/s.
• Incidental personal travel between home and work is no more than 2 kilometres in total.
• No private use of the vehicle for a single return journey is more than 200 kilometres for the year.
• The total private journeys taken during the FBT year are less than 750 kilometres in total.

These proposed changes could be a huge concern for businesses and employers. As the guidelines aim to prevent employees misusing work vehicles for personal use and stop businesses from over claiming running expenses.

This could mean, in addition to taking precautionary steps during the purchase of the vehicle, business owners may also need to complete additional time consuming documentation. As well as paying closer attention to the private use of company vehicles.

Reducing motor vehicle FBT liability

The needs of a business could result in the purchase of a vehicle deemed private in nature or design. Which may then have fringe benefit implications and possible tax payable at the end of the FBT year.

There are a few ways to reduce the taxable value of such benefits including:

• Contributions by the employee to the employer towards the motor vehicle fringe benefit’s taxable value. Cash contributions may be treated as assessable income in the employer’s financial statements. Therefore, GST would be payable on this.
• A cash contribution by the employee to the employer or directly to the car dealer. Reducing the cost price of the vehicle on purchase.
• Trade-in of employee or employer owned vehicles.

Record keeping for FBT

For vehicles not exempt from FBT and those with high business use, it is recommended to keep detailed records of the vehicle and its usage throughout the FBT year. Be aware that the FBT year starts on 1st April and ends on the 31st March of the subsequent year.

It’s important to keep a detailed logbook for business and private travel for a minimum of 12 consecutive weeks. This assists in calculating the percentage of use for business purposes and the portion of vehicle running expenses to be claimed by the business. The higher the percentage for business use, the lower the fringe benefit taxable value. That logbook can then be used for the next five years. Providing it is for the same vehicle and the overall use does not change significantly. A business is required to keep a separate logbook for each vehicle.

We have found many of our clients initial logbooks to be inadequately maintained as per ATO guidelines. This may result in the ATO denying any motor vehicle expense deductions or a higher taxable value of motor vehicle fringe benefits.

Maintaining a detailed logbook

A detailed logbook involves:

• Recording the vehicle specifications and registration number.
• Keeping odometer records from either the date of purchase or start of every FBT year. Then again at the end of the FBT year.
• Recording daily use of vehicle for a minimum of a 12-week period. This includes the total business and private kilometres travelled and the purpose of the journey including location details. More on the logbook method from the ATO website.
• There are plenty of portable electronic solutions on the market today. A built-in GPS may be attractive for your employees to keep record of the vehicle’s use, distance travelled and locations.

The following documentation is also recommended:

• The invoice for the purchase of the motor vehicle and other related documentation.
• Receipts or electronic record of motor vehicle running expenses.
• Log of the number of days the vehicle was not available for employee’s private use. Such as, if the vehicle was parked at the business premises, in secure airport parking or if it was unavailable. This could be due to things like a serious accident or major servicing. A vehicle is considered available for private use if it is kept at the home of the employee or if the employee has the car keys and can access the vehicle. Even if it is kept at the business premises.

Considering these issues before purchasing a motor vehicle will help your business avoid any fringe benefits and additional tax pitfalls. FBT is always changing, so getting expert advice to ensure you know your obligations is crucial to avoid costly mistakes.

Should you require further information, we are always here to help. Please get in touch with our team.

You have been asked by your employer to apply for an ABN as they want to hire you as a subcontractor.

What you need to do to be able to subcontract?

There are a few things you will need to take care of:

1. 1. Apply for an Australian Business Number (ABN)
   2. Apply for GST registration (if necessary)
      As your accountant, we would advise you on this.
   3. Set up a competent bookkeeping system or software
      Many subcontractors choose to use QuickBooks Online (QBO). QuickBooks Online like many other programs link to your business bank account and can track all of your expenses, process invoices, produce reports to calculate profit and loss etc. At Canny Accounting we are able to offer wholesale prices for a QBO subscription and have staff members more than capable of assisting you with setup and maintenance of the program. We find QBO to be one of the most cost effective and easy to use programs. We also have clients who have chosen to use Xero and MYOB and we can easily assist you with those as well.

Canny Accounting can provide you with all the help you need in the above steps. We have an accounting and bookkeeping team dedicated to assisting you with setting up and maintaining your new business.

Common mistakes

One of the most common mistakes we come across with subcontractors, is not putting aside a percentage of income to cover tax, GST (if applicable) and superannuation.

If you were an employee, your employer would take care of this for you. They subtract the tax withheld and superannuation amount from your wage. Then the amount paid into your bank account is all yours to spend as you please. This however, is not the case for a subcontractor. You are paid the full amount for the job you have completed. It is then up to you to put aside an amount to cover your income tax, superannuation and if applicable, GST for your Business Activity Statement (BAS).

We recommend at least 30% of your income should be set aside to cover these expenses. The remaining 70% is then for you to use to cover your wage and day-to-day business expenses.

Are you a subcontractor or should you actually be considered an employee?

There are many myths about what classes a worker as a subcontractor. The big one being the “80% rule” or the “80/20 rule”. This implies that a worker cannot work for one business more than 80% of the time. As this should otherwise consider them an employee.

This however, is incorrect. In the myths and facts stated by the ATO the 80% rule relates to personal services income (PSI) and can change how a contractor:

1. 1. 1. Reports their income in their own tax return.
      2. Claims some business-like deductions.

It’s not a factor a business considers when they work out whether a worker is classed an employee or contractor.

There are several factors used to determine the difference between a subcontractor and an employee. Such as the basis of payment. An employee is paid on commission, time worked, etc. A contractor is paid for completing a job based on an initial quote.
Another factor is equipment, tools and other assets. An employee has tools provided to them by the employer, receives an allowance or has a reimbursement agreement in place. A contractor provides all their own equipment and tools etc.

It is against the law to treat employees as contractors. Businesses that do this are taking the risk of receiving penalties and charges if caught.

How Canny Accounting can help

Canny Accounting are more than happy to assist you if you have any queries about making the transition from employee to subcontractor or how you should be classed. Get in touch with us.

True or false?

A hobby becomes a business when a certain dollar amount is ‘made’ or ‘spent’?

This is the general rule of thumb thought by many but it is not actually true. What matters is whether, as a whole, your activity is commercial with an aim to make a profit. Here are some points to consider if you are not sure:

Benefits of being a hobby

• Personal enjoyment and satisfaction
• You can gift or sell your work for the cost of materials
• Can be done in your own time or when people contact you
• There are no reporting obligations that are required by a business

What is a business?

You’re in business, if your activity, as a whole, is commercial with an aim to make a profit.
This applies if you are selling online or traditionally.

When a hobby becomes a business

So the key questions to consider are:

1. What is the prospect that I will make a profit?
2. Do I genuinely believe that I will make a profit from my activity even though it may not be immediately?
3. Is my activity planned, organised and carried out in a business like manner such as
   keeping business records and accounts, having a bank account for transactions, holding licenses or qualifications or perhaps having a registered business name?

If you answered yes to any of these, you may require an Australian Business Number (ABN).

If your activities are a hobby but you supply goods or services to businesses, they may request your ABN when they pay you. Because you do not have an ABN and your activity is done as a hobby, you should use the Statement by a supplier form. This will avoid the business you are supplying having to withhold an amount of tax from their payment to you.

It is understandable that this is a confusing area. To look further into starting a new business get in touch with us.

Don’t miss out on this opportunity.

The HECS-HELP Benefit is not widely published by the ATO and therefore we have found that very few know about it.

The benefit provides an incentive for graduates of particular courses to take up related occupations. Or work in specified locations, by reducing their compulsory HELP repayments or HELP debt. You may be eligible for the HECS-HELP Benefit if you have graduated in one of the following fields and fit the listed criteria.

Mathematics, statistics or science

• Graduated from an undergraduate ‘natural and physical science’ field of education course (mathematics, science or statistics) after 30 June 2008.
• Employed in a related occupation, including as a secondary school teacher of these subjects or as a primary school teacher.

Education, nursing or midwifery

• Graduated from an education, nursing or midwifery course required for initial entry to a teaching or nursing profession after 30 June 2009.
• Employed as a teacher or nurse/midwife.

Early childhood education

• Graduated from an early childhood education teaching course.
• Employed as an early childhood teacher.
• Employed by a provider of pre-school education or childcare services in a regional or remote area, Indigenous community or area of high-socioeconomic disadvantage, as specified in the HECS-HELP Benefit Guidelines.

The 2016-2017 financial year is the last for which someone can claim the HECS-HELP Benefit.

From 1 July 2017, the HECS-HELP Benefit will be removed. This means that the 2016/17 income year is the last chance you have to claim the HECS-HELP Benefit. However, you can still lodge your application for the 2015/16 and 2016/17 financial years now.

Are you eligible?

You are eligible for the HECS-HELP Benefit if you:

1. Graduated from an eligible education course or an eligible nursing/midwifery course after 30 June 2009;
2. Were a Commonwealth supported student for some or all of that course;
3. Had a HECS-HELP debt at course completion for that course;
4. Still have a HELP debt to repay in the income year of your application; and
5. You were employed as a teacher or a nurse/midwife for at least one week in the income year for which you are applying.

There is a lifetime limit of 260 weeks for the Benefit as an education or nursing/midwifery graduate. This means eligible applicants could receive this HECS-HELP Benefit for five years of eligible employment.

How much will my reduction be?

The Benefit is calculated on a pro-rata basis according to the number of weeks worked in the income year period. The amount of HECS-HELP Benefit that you can receive depends on your HELP debt when you completed your course and the number of weeks worked in an eligible occupation.

The maximum HECS-HELP Benefit as an education or nursing/midwifery graduate is:

• $1,798.48 for the 2015-16 income year;
• $1,825.46 for the 2016-17 income year.

To be eligible to apply for the HECS-HELP Benefit, you must be able to answer “Yes” to all questions below:

1. Are you applying for the 2015/16 and/or the 2016/17 income year?
2. Have you completed one of the following:
   1. An undergraduate natural and physical science course of study (maths or science graduate – classified as being in Broad Field 01 Australian Bureau of Statistics) after 30 June 2008?
   2. An Education course of study after 30 June 2009?
   3. Nursing (including midwifery) course of study after 30 June 2009?
3. Were you a Commonwealth supported student for some, or all of the course?
4. In the income year (1 July – 30 June) for which you are applying. Were you employed in an eligible occupation in Australia related to that course for at least one week?
5. Did you incur a HELP debt at course completion in respect to that course and still have some or all of the HELP debt to repay?
6. Do you have a HELP debt in the income year (1 July – 30 June) you are claiming for?
7. In the income year (1 July – 30 June) for which you are applying. Are you required to make a compulsory repayment or overseas levy?

If you answered “yes” to the above questions and would like more information about claiming the HECS-HELP Benefit for the 2015/16 and/or the 2016/17 income years, get in touch with us.

The importance of getting the right advice

To keep it simple, Capital Gains Tax or CGT is the tax applied to any financial gain made from selling a capital asset. The difference between the sale proceeds of the asset (i.e. the price the asset is sold for) and the value of the asset when it was purchased or acquired, generally equates to the capital gain or loss.

It’s a fiddly area because depending on the situation and type of asset you are looking to part with, there are a host of different exemptions and discounts that may be available to you.

For the purpose of this article we are going to look at CGT on inheritances. So when does it apply?

The good news is, if the inheritance is cash, whether it’s $10,000 or $100,000, there will be no CGT to pay. The only tax payable will be on the interest earned with these funds sitting in a bank account.

When it comes to assets such as shares or a house, it gets a little more complicated. This is why it is important to get advice BEFORE you receive any inheritance. Even executors may find it in their best interests to seek tax advice prior to any distributions being made to beneficiaries.
Generally the CGT will only be applicable when and if the asset is sold (by either the estate or the beneficiary) and not when the asset is distributed to the beneficiaries.

How is CGT is calculated?

Should there be a decision to part with the asset, the basic formula for working out CGT is:

Funds received from the sale, MINUS the value of the asset at purchase or acquisition, PLUS costs associated with obtaining, holding and selling the asset.

If the end result is a capital gain, we can often apply a discounts or specific concessions. The remaining balance will then be taxed at your individual marginal tax rate for that year.

If it turns out that you have made a capital loss, therefore the asset has cost you more than what you received at sale, this loss can be carried forward indefinately and be used to offset most capital gains that you may make in the future.

When it comes to selling, the timing of the sale can be everything!

The decision on when to sell an asset can often affect how much CGT is paid and the discounts that are available.
In order to receive a 50% discount on a capital gain, the asset must be held for a period of 12 months from the date you are taken to have acquired it, so we first need to confirm if the asset is pre or post CGT.

For an asset that was purchased pre-CGT, it is taken to be acquired by the beneficiary on the date of death of the deceased. Whilst assets that are purchased on or after 20 September 1985 are deemed to be acquired on the date that they were originally purchased by the deceased.

The amount of time you should hold inherited shares to receive the 50% discount will completely depend on whether the shares were purchased pre or post CGT.

If it’s a property however, there are other concessions and exemptions in addition to the 50% discount that may change the CGT calculation. This could include what it was used for (i.e. investment or main primary residence).

To calculate CGT for all assets, the actual amount of tax payable will be determined by the above factors and the personal income of the beneficiary for that year.

To be able to obtain tax advice for your own personal situation, we would recommend setting up a spreadsheet or just start some good old fashioned record keeping for the life of the asset.

For property assets, we would recommend keeping copies of all of the property holding costs, such as council rates and insurance. We may also suggest a property valuation be prepared, if needed.

If it is share type assets, then we advise that all Dividend Reinvestment Plan (DRP) statements be kept, as these will add to the cost of the asset when it comes time to sell. DRP statements are generally sent out every six months.

But as a bare minimum, always keep any legal documents that relate to the buying or selling of any asset as this will help your tax accountant provide you with the best advice for your own situation.

Behind on your tax? Here’s the first step…

It’s about now that we all start pondering what our new year’s resolution may be. Generally the list goes something along the lines of lose weight, cut up the credit card and start living every day to its fullest. Well, if you’re behind on your tax returns now is the perfect time to feel motivated to do something about it.

Step #1

Your first step is to call our office – easy!

We don’t mind that you haven’t lodged tax returns in several years. There have been plenty of stressed and worried people walk into our office over the years and every single time they have left feeling relieved with a weight off their shoulders. We don’t mind whether you have two or ten years due, we can help you.

We thought we should probably add in a few more steps to clarify a few things and ensure that you are completely looked after.

Step #1 part B

Calling to make the appointment: When you call we will ask for your date of birth and tax file number. This allows us to download all your historical information from the Australian Taxation Office. So if you have lost some of your PAYG Payment Summaries don’t worry, it is highly likely we can download them.

Step #2

This is on us. We will log in to the ATO Tax Agent Portal, download your information and check exactly what is outstanding and whether there are likely to be any fines or penalties. We will also check if you have any outstanding debts with the ATO.

Step #3

Also on us. Before you come in, one of our accountants will review the information downloaded from the ATO and prepare the returns to draft.

Step #4

This one is on you. Come in for your appointment, we will then go through all of your returns with you. Going over the information we have and helping you to piece together any missing bits of information.

Step #5

Find missing information: We will identify what information is missing (if any) and make a list so you can follow it up easily and simply.

Step #6

Once complete, we will give you a copy of the estimates so you know well in advance what the estimated refund or assessment is likely to be.

Step #7

We lodge all outstanding tax returns.

Step #8

Once assessed, we will check your tax returns and ensure that the assessments are correct.

Step #9

If you have received any fines or penalties, our next step is to contact the ATO and discuss them. If there are unusual circumstances that have led to the late lodgement, such as illness, injury, divorce, relationship breakdown, accident or otherwise, we will discuss this with the ATO and apply for remission of the penalties and interest.

We understand there may be various reasons that have lead people to get behind on their tax returns. It’s our job to help you catch up.