Small Business Immediate Asset Write-Off
Small business entities can claim an immediate deduction for depreciating assets that cost less than $20,000, provided the asset is first acquired on or after 7.30pm, by legal time in the ACT, on 12 May 2015, and first used or installed ready for use on or before 30 June 2018. Depreciating assets that do not meet these timing requirements continue to be subject to the $1,000 threshold.
Small business entities can claim an immediate deduction for depreciating assets that cost less than $1,000 if the asset is first used or installed ready for use on or after 1 July 2018.
2017 Tax Returns with 31 October Due Date
If clients have prior year returns overdue, the lodgement due date for their 2017 tax return will show as 31 October on the Tax Agent Portal.
If all outstanding prior year returns are lodged by 31 October 2017, the lodgement program due dates will apply to the 2017 tax return, rather than 31 October 2017.
There may be a delay of a few weeks after lodgement for this to be updated on the ATO’s systems.
Car Limit 2017/18
The car limit is $57,581 for the 2017/18 income year (unchanged from the previous year). This amount limits depreciation deductions and GST input tax credits.
In July 2017, Laura buys a car to which the car limit applies for $60,000 to use in carrying on her business. As Laura started to hold the car in the 2017/18 financial year, in working out the car’s depreciation for the 2017/18 income year, the cost of the car is reduced to $57,581.
Luxury car tax (LCT) is payable where there is a taxable supply or a taxable importation of a luxury car. The tax applies to the portion of the value of the car above the luxury car tax threshold, which varies from year to year. The rate of LCT, originally 25%, was increased to 33% for most cars with effect from 2008/09. LCT is additional to the normal GST payable.
The luxury car threshold is not the same as the “car limit” (formerly known as the car depreciation limit) that applies for income tax depreciation purposes.
Key rate: Luxury car tax threshold
Financial Year General Fuel Efficient Cars
2017/18 $65,094 $75,526
Cents Per Kilometre Claims in ATO’s Sights
Under the current rules of substantiation, the maximum distance that a taxpayer can claim without receipts for car expenses is 5,000 kilometres per year. Under this amount, a taxpayer may claim a deduction under by the cents per kilometre method.
The cents per kilometre method caps the distance limit to 5,000 kilometres, or otherwise at 66 cents per kilometre, at $3,300 per year. If a taxpayer wants to claim an amount above this, additional substantiation is required. Usually, all receipts are required for a deduction, reduced by an amount relating to private use calculated using a current log book.
Recently, the Australian Taxation Office has issued a warning to taxpayers, in particular individuals, who claim right at the maximum limit of $3,300 using the cents per kilometre method. Specifically, they have said that amounts at or near the limit will be deemed at a higher risk for review.
Risk Mitigation Steps
For taxpayers that are at or near the cents per kilometre limit, there is a specific need to advise them of the specific substantiation requirements for this claim.
When using the cents per kilometre method, there is no specific requirement to keep records for substantiation of the claim. The number of business kilometres claimed, however, must be based on a reasonable estimate.
Business kilometres under the cents per kilometre method is determined by the kilometres the car has travelled in the course of:
- producing assessable income, or
- travel between workplaces.
The idea of “reasonable estimate” does not have any further clarification in the tax law and takes its ordinary meaning. From a practical perspective:
- irregular work-related travel would need to be specifically listed down in a written record, and
- regular work-related travel (say between two work sites) may be calculated with reference to the number of trips made.
The written evidence of business kilometres travelled for an income year under the cents per kilometre deduction must be retained for five years. There is no need to lodge it with the income tax return, however, details relating to the calculation will be the initial question asked by the ATO in a review.
Imposition of GST on ‘Low-Value’ Foreign Supplies
Parliament has passed legislation which applies GST to goods costing $1,000 or less supplied from offshore to Australian consumers from 1 July 2018.
The Government states that this is “a win for Australian retailers, by removing the unfair advantage foreign businesses had with respect to GST.”
Using a vendor collection model, the law will require overseas suppliers and online marketplaces (such as Amazon and eBay) with an Australian GST turnover of $75,000 or more to account for GST on sales of low value goods to consumers in Australia.
The deferred start date gives industry participants additional time to make system changes to implement the measure.
It should be noted that this is a separate measure to that which applies GST to digital goods and services purchased from offshore websites, which applies from 1 July 2017.
Crackdown on Rental Property Deductions
The government has released explanatory material for the “housing affordability and tax integrity measures” the government announced in the 2017/18 budget, being:
- The removal of travel deductions for individual investors with residential investment properties, including travel costs associated with inspecting and maintaining properties (although this change will not prevent investors from claiming a deduction for the expense of engaging third parties such as real estate agents to provide property management services for investment properties); and
- Limiting plant and equipment depreciation deductions to outlays actually incurred by individual investors in residential real estate properties.
Tax Debt Payment Plans
Taxpayers with a debt of $100,000 or less can take of advantage of the ATO’s self-help service to set up a payment plan in two easy steps.
- Use the payment plan estimator to work out their options.
- With their TFN or ABN on hand, set up a payment plan by either:
- Phoning the ATO’s automated service on 13 72 26; or
- Using the online services for sole traders or individuals on their myGov account
If they pay late or by instalments, interest accrues on the unpaid debt.
If the tax debt is more than $100,000 the taxpayer can phone 13 11 42.
Note that taxpayers with a payment plan still need to lodge all of their ongoing activity statements and tax returns on time.
ATO Warning Regarding Work Related Expenses Claims for 2017
The ATO is increasing attention, scrutiny and education on work-related expenses (WRE’s) this tax time.
Assistant Commissioner Kath Anderson said: “We have seen claims for clothing and laundry expenses increase around 20% over the last 5 years. While this increase isn’t a sign that all of these taxpayers are doing the wrong thing, it is giving us reason to pay extra attention,” she said.
Ms Anderson said common mistakes the ATO has seen include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.
“I heard a story recently about a taxpayer purchasing everyday clothes who was told by the sales assistant that they could claim a deduction for the clothing if they also wore them to work,” Ms Anderson said.
“This is not the case. You can’t claim a deduction for everyday clothing you bought to wear to work, even if your employer tells you to wear a certain colour or you have a dress code.”
Ms Anderson said it is a myth that taxpayers can claim a standard deduction of $150 without spending money on appropriate clothing or laundry. While record keeping requirements for laundry expenses are “relaxed” for claims up to this threshold, taxpayers do need to be able to show how they calculated their deduction.
“Over 1.6 million taxpayers claim a deduction of exactly $150. We expect many of these claims to be legitimate but the results of our random audits show that people are making mistakes.”
Ms Anderson said there are three golden rules to follow which will help taxpayers to get their deductions right.
“One – you have to have spent the money yourself and can’t have been reimbursed, Two – the claim must be directly related to earning your income, and Three – you need a record to prove it,” she said.
“The myDeductuions tool in the ATO app is also a great way to make keeping records for your deductions easier. If you start using it now, next tax time will be a breeze because you can send your deductions to your tax agent or upload them directly to myTax.”
For more information about work-related expenses, visit ato.gov.au/deductions.
Failure To Lodge Penalty Remissions Update
The ATO has provided an update on the progress of remissions of failure to lodge (FTL) on time penalties on eligible obligations (as announced by the Commissioner in July), as follows:
- 2016 tax returns – remissions have started to issue;
- Activity statements lodged from December 2016 up to 31 August 2017 – remissions in progress and will start to issue shortly.
The ATO will continue to remit any FTL penalties imposed on eligible obligations lodged by 31 August 2017. Practitioners do not need to apply for a remission, and the ATO will let them know when the remission process is completed.
If the minor benefit exemption applies, this will affect the FBT, income tax and GST treatment of gifts provided to employees and associates. It will not however affect the FBT, income tax or GST treatment of gifts provided to third parties.
Under the minor benefits exemption, a gift that an employer provides to an employee/associate is exempt from FBT if both of the following two conditions are met:
- The notional value of the gift is less than $300 (GST-inclusive) and
- It would be unreasonable to treat the gift as a fringe benefit.
Condition 1: The $300 Threshold
There are three important points to note about the $300 threshold:
- It is GST-inclusive (i.e. $272 GST-exclusive)
- Where multiple minor benefits are provided to an employee at the same time (e.g. at Christmas time where meals and a gift are provided at the same time), each benefit will have its own $300 exemption threshold (i.e. $300 for the meal entertainment, and a separate $300 threshold for the gift).
- It is applied separately to the employee and their associate. Therefore, if an employee and their associate (e.g. spouse) each receive a gift from the employer, then the employee and their associate each have their own separate $300 threshold.
Condition 2: Unreasonable to Treat the Benefit as a Fringe Benefit
The existence of Condition 2 means that contrary to widespread belief, the minor benefit exemption is not automatically satisfied if the gift is valued at less than $300 (GST-inclusive). Rather, Condition 2 must also be satisfied. In determining whether it is unreasonable to treat a minor benefit as a fringe benefit (Condition 2) the following factors all must be considered:
- The frequency and regularity with which associated benefits (i.e. similar or identical gifts) have been provided to the employee/associate
If similar gifts have been provided to the employee on a frequent or regular basis, then this makes it less likely that the gift in question will be exempt from FBT. The Tax Office has not specified an exact number of times a benefit can be provided before it is considered frequent (and therefore less likely to satisfy the minor benefit exemption). However, consider the following example which would be quite common in workplaces where the employer provides gifts for staff:
An employer provides each of its employees with a modest gift at Christmas time. The range of gifts provided by the employer includes a bottle of whisky, perfume or a store voucher. It is the employer’s policy to provide gifts to employees on only a few special occasions throughout the year. The gifts provided to each employee are always valued at less than $300.
Because the value of the gift to an employee is below the minor benefits threshold, it is necessary to consider Condition 2, namely if it would be unreasonable to treat the minor benefit as a fringe benefit.
The Christmas gifts are provided infrequently but on a regular basis (being every Christmas). However, the sum of the value of all gifts, where they are identical or similar benefits, in this year and all other years is not considered substantial, and there are no other associated benefits provided in connection with the gift. There would be no difficulties in determining the value of the benefit and the benefit was not provided to assist the employee deal with an unexpected event. On the facts, the gift is also not wholly or principally a reward for services.
On balance, having regard to the various factors in Condition 2, it would be concluded that it would be unreasonable to treat the benefit as a fringe benefit. Accordingly, the gift provided to the employee is an exempt benefit.
We can see from this Tax Office example that even where an employer provides Christmas gifts every year, as well as gifts on other special occasions (e.g. birthdays, engagements etc. these are unlikely to be classed as being frequently provided (despite being provided regularly i.e. every Christmas). Therefore, such gifts are more likely to be exempt from FBT.
As we shall see later, where a benefit is exempt from FBT, certain income tax and GST consequences will flow from this.
- The aggregate value of the gift and any associated benefits provided to theemployee in the current FBT year and in any prior FBT years
The greater the cumulative value of the minor benefits provided, the less likely the minor benefit exemption will apply. For instance, if there are several benefits each totalling just under $300 but cumulatively totalling thousands of dollars, then although all are below the $300 threshold, the minor benefits exemption is less likely to apply than if the several benefits totalled just over $300, for instance. The Tax Office has not however provided any concrete guidance in terms of an exact dollar figure in this area.
- The circumstances in which the benefit and any associated benefit is provided
This includes a consideration of the following:
- Whether the benefit was provided as a result of an unexpected contingency (e.g. the employer lending you their vehicle for emergencies during the year). If so, the minor benefit exemption is more likely to apply, and
- Whether the benefit is considered to have been provided to an employee as a reward for their services. This can often be the case with gifts provided to employees (e.g. under staff incentives schemes). If so, the minor benefits exemption is less likely to apply.
EXAMPLE – Monthly reward Scheme
Sports Buzz is a subscription magazine. To obtain new subscribers it employs telemarketers to phone the public and sell subscriptions. To provide incentives for staff, the employer gives a monthly prize to the telemarketer with the best sales figures. The prize is a gift voucher to the value of $200 which can be redeemed at the local shopping centre. Throughout the year, one of the employees, Damon, wins four such awards. The company’s bookkeeper wonders whether these vouchers are exempt from FBT under the minor benefits exemption.
With reference to the previous four factors, although each is valued at below $300, the four $200 vouchers are unlikely to be exempt from FBT under the minor benefits exemption because:
1] The vouchers have been provided to Damon on a frequent and regular basis (i.e. four times during the year, with the possibility of 12 per year)
2] The aggregate value of vouchers is $800 and therefore quite significant. The value of any vouchers provided in prior years can also be taken into consideration
3] The benefit was not provided to assist Damon to deal with an unexpected event. Furthermore, the vouchers are provided as a reward for services rendered (i.e. for exceptional work performance).