Tag: deductions

shares

Share investing versus share trading

Posted on | by Allan Hall

Understanding Share Investing vs Share Trading: A Guide to ATO Classifications

Key tax differences between share investors and traders explained

A commonly asked question we receive at Allan Hall is how the ATO classifies a share investor vs a share trader.

Typically clients make a profit and they want to be assessed as an ‘investor’ so that the capital gain is taxed with any applicable discounts. Conversely if they incur a loss we receive questions as to whether they are classified as a ‘trader’ so that the losses can be deducted against other income they have earned.

Tax treatment

If you hold shares as an investor:

  1. your shares are assets and are subject to capital gains tax when you sell them
  2. your costs are taken into account at the time you sell your shares
  3. if you have a capital loss you can use it to offset capital gains but not to offset income from other sources
  4. income is earned from dividends and similar receipts.

If you are a share trader:

  1. your shares are treated like trading stock in the ordinary course of a business
  2. your gains are treated as ordinary income
  3. your losses and costs are treated as deductible expenses in the year they are incurred.

How to determine if you are a share trader

Determining if you are a share trader is the same as determining whether your activities are considered to be carrying on a business for tax purposes.

Under tax law, a business includes ‘any profession, trade, employment, vocation or calling, but does not include occupation as an employee’.

To determine whether you are a share trader or a business of trading shares, the following factors have been taken into account in court cases:

  1. the nature and purpose of your activities – typically the ATO wants to see a business plan that details the intention to make a profit and the ways this would be achieved
  2. the repetition, volume and regularity of your activities – the higher the volume the more likely you are carrying on a business
  3. whether your activities are organised in a business-like way – advice received, company analysis methodology, record keeping etc  
  4. the amount of capital invested

The above is a brief overview of the issues involved. Should you require further advice please contact your Allan Hall advisor.

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car buying private or business

Changes to car thresholds from 1 July

Posted on | by Allan Hall

The following car threshold amounts will apply for the 2024–25 financial year.

Income tax

  • The car limit for 2024–25 is $69,674. This is the highest value you can use to calculate depreciation on a car where both of the following apply:
    • you use the car for business purposes
    • you first use or lease the car in the 2024–25 income year.
  • As a business owner, you can claim a tax deduction for expenses for motor vehicles you use for business purposes.
  • If you use a motor vehicle for both business and private purposes, you can only claim a deduction for the business part. You must be able to show the percentage you claim as business use and have records to support your claim.

Goods and services tax (GST)

  • If you buy a car and the price is more than the car limit, the maximum GST credit you can claim (except in certain circumstances) is one-eleventh of the car limit. For the 2024–25 income year, the maximum GST credit you can claim is $6,334 (that is, 1/11 × $69,674).
  • You can’t claim a GST credit for any luxury car tax you pay when you buy a luxury car, even if you use it for business purposes.

Luxury car tax (LCT)

  • The LCT threshold for 2024–25 is:
    • $91,387 for fuel-efficient vehicles. This is in line with an increase to the motor-vehicle purchase sub-group of the Consumer Price Index (CPI)
    • $80,567 for all other luxury vehicles, in line with an increase in the ‘All Groups’ CPI.

If you’re looking to buy a luxury car, remember to be cautious of those who offer to buy one from a dealer on your behalf at a discount. This may be a scheme to evade LCT. You may be at risk if they don’t have the right insurance or if the car is damaged or defective.

To find out more about LCT, including when you need to apply it and what’s included in the LCT value of a car, visit the Luxury car tax page on the ATO’s website.

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2023-24 Federal Budget

Posted on | by Allan Hall

Tax and Superannuation Overview

2023-24 Federal Budget Highlights

The Federal Treasurer, Dr Jim Chalmers, handed down the 2023–24 Federal Budget at 7:30 pm (AEST) on 9 May 2023.

The Budget forecasts the underlying cash balance to be in surplus by $4.2 billion in 2022–23, the first surplus since 2007–08, followed by a forecast deficit of $13.9 billion in 2023–24.

The Treasurer has described the tax measures as “modest but meaningful” including changes to the Petroleum Resources Rent Tax and confirmation of a 1 January 2024 implementation of the BEPS Pillar Two global minimum tax rules.

A range of measures provide cost-of-living relief to individuals such as increased and expanded JobSeeker payments and better access to affordable housing. No changes were announced to the Stage 3 personal income tax cuts legislated to commence in 2023–24.

As part of the measures introduced for small business, a temporary $20,000 threshold for the small business instant asset write-off will apply for one year, following the end of the temporary full expensing rules.

The full Budget papers are available at www.budget.gov.au and the Treasury ministers’ media releases are available at ministers.treasury.gov.au. The business tax and superannuation highlights are set out below.

READ FULL BUDGET REPORT

Business highlights

  • The instant asset write-off threshold for small businesses applying the simplified depreciation rules will be $20,000 for the 2023–24 income year.
  • An additional 20% deduction will be available for small and medium business expenditure supporting electrification and energy efficiency.
  • FBT exemption for eligible plug-in hybrid electric cars will end from 1 April 2025.
  • Employers will be required to pay their employees’ superannuation guarantee (SG) entitlements at the same time as they pay their salary and wages from 1 July 2026.

Small business depreciation — instant asset write-off threshold of $20,000 for 2023–24

The instant asset write-off threshold for small businesses applying the simplified depreciation rules will be $20,000 for the 2023–24 income year.

Small businesses (aggregated annual turnover less than $10 million) may choose to calculate capital allowances on depreciating assets under a simplified regime. Under these simplified depreciation rules, an immediate write-off applies for low cost depreciating assets. The measure will apply a $20,000 threshold for the immediate write-off, applicable to eligible assets costing less than $20,000 first used or installed between 1 July 2023 and 30 June 2024. The $20,000 threshold will apply on a per asset basis, so small businesses can instantly write-off multiple low-cost assets. The threshold had been suspended during the operation of temporary full expensing from 6 October 2020 to 30 June 2023.

Assets costing $20,000 or more will continue to be placed into a small business depreciation pool under the existing rules.

The provisions that prevent a small business entity from choosing to apply the simplified depreciation rules for 5 years after opting out will continue to be suspended until 30 June 2024.

Increased deductions for small and medium business expenditure on electrification and energy efficiency

An additional 20% deduction will be available for small and medium business expenditure supporting electrification and energy efficiency.

The additional deduction will be available to businesses with aggregated annual turnover of less than $50 million. Eligible expenditure may include the cost of eligible depreciating assets, as well as upgrades to existing assets, that support electrification and more efficient use of energy. Certain exclusions will apply, including for electric vehicles, renewable electricity generation assets, capital works, and assets not connected to the electricity grid that use fossil fuels.

Examples of expenditure the measure will apply to include:

  • assets that upgrade to more efficient electrical goods (eg energy-efficient fridges)
  • assets that support electrification (eg heat pumps and electric heating or cooling systems), and
  • demand management assets (eg batteries or thermal energy storage).

Total eligible expenditure for the measure will be capped at $100,000, with a maximum additional deduction available of $20,000 per business.

When enacted, the measure will apply to eligible assets or upgrades first used or installed ready for use between 1 July 2023 and 30 June 2024. Full details of eligibility criteria will be finalised in consultation with stakeholders.

FBT exemption for eligible plug-in hybrid electric cars to end

The FBT exemption for eligible plug-in hybrid electric cars will end from 1 April 2025.

Arrangements involving plug-in hybrid electric cars entered into between 1 July 2022 and 31 March 2025 remain eligible for the exemption.

Employers to be required to pay SG on payday

Employers will be required to pay their employees’ superannuation guarantee (SG) entitlements at the same time as they pay their salary and wages from 1 July 2026.

Employers are currently required to make SG contributions for an employee on a quarterly basis to avoid incurring a superannuation guarantee charge.

The proposed commencement date of 1 July 2026 is intended to provide employers, superannuation funds, payroll providers and other stakeholders sufficient time to prepare for the change.

Changes to the design of the superannuation guarantee charge will also be required to align with the increased payment frequency. The government will consult with relevant stakeholders on the design of these changes, with the final framework to be considered as part of the 2024–25 Budget.

In addition, funding will be provided to the ATO to, among other things, improve data matching capabilities to identify and act on cases of SG underpayment.

Superannuation measures

  • Superannuation earnings tax concessions will be reduced for individuals with total superannuation balances in excess of $3 million from 1 July 2025.
  • The non-arm’s length income (NALI) provisions will be amended to provide greater certainty to taxpayers.

Reducing tax concessions for super balances exceeding $3M

Superannuation earnings tax concessions will be reduced for individuals with total superannuation balances in excess of $3 million.

From 1 July 2025, earnings on balances exceeding $3 million will incur a higher concessional tax rate of 30% (up from 15%) for earnings corresponding to the proportion of an individual’s total superannuation balance that is greater than $3 million. The change does not impose a limit on the size of superannuation account balances in the accumulation phase and it applies to future earnings, ie it is not retrospective.

Earnings relating to assets below the $3 million threshold will continue to be taxed at 15%, or zero if held in a retirement pension account.

Interests in defined benefit schemes will be appropriately valued and will have earnings taxed under this measure in a similar way to other interests.

Need help?

If you would like assistance to interpret these changes and how they may affect your individual or business circumstances, please contact your Allan Hall Advisor on 02 9981 2300.

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working from home

WFH changes and what the ATO is looking for

Posted on | by Allan Hall

Calculation and record-keeping requirements of your working from home (WFH) deductions may have changed for the 2022-23 income year.

The 80c per hour temporary shortcut method ended on 30 June 2022.

For the 2022-23 income year you may be able to use either the revised fixed rate method or the actual cost method to determine your working from home deductions.

Whilst the actual cost method remains unchanged, the fixed rate method has increased from 52c per hour to 67c per hour.  The revised fixed rate method incorporates the following usage expenses:

  • electricity
  • gas
  • stationery
  • computer consumables, such as printer ink
  • internet
  • phone.

It is not possible to claim an additional deduction for expenses that are already covered by the revised fixed rate method. However, you may be eligible to claim a separate deduction for the depreciation of assets, including items like laptops, mobile phones, and office furniture.

To claim your working from home deductions using the revised fixed rate method, you must be able to provide both:

  • A representative record of the total number of hours worked from home during the period from 1 July 2022 to 28 February 2023.
  • A record of the total number of actual hours worked from home for the period 1 March 2023 to 30 June 2023.

If you choose not to use the fixed rate method, you may be able to use the actual cost method. Please contact your Allan Hall Accountant to assist you in getting the best tax deduction for your personal circumstances.  

Regardless of the method you choose, it is important to maintain accurate and complete records for at least 5 years to support your claims for home-based business expenses.

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stopwatch countdown to deadline

End of temporary full expensing

Posted on | by Allan Hall

Temporary full expensing measures finish 1 July 2023

The temporary full expensing rules allow eligible businesses to claim a tax deduction for the full cost of eligible depreciable assets (except for motor vehicles which are subject to the current car cost limit of $64,741).

To claim the deduction in full, in the year the asset is acquired, the asset must be installed and ready for use and must be used for a taxable purpose.

Key changes

  • The temporary full expensing measures that have allowed small and medium businesses to write off the full cost of new assets, with no limit, (other than the cost limit on motor vehicles) is scheduled to end on 1 July 2023
  • Any business considering purchasing assets and utilising these measures prior to this date should plan now — it is important to note that to receive the deduction, an asset must be installed and ready for use.

Temporary full expensing supports businesses and encourages investment, as eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.

From 1/7/2023 to 30/6/2024, businesses with turnover up to $10M will be entitled to claim an immediate tax deduction for assets costing $20,000 or less. Assets purchased above this amount will not get an immediate deduction.

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vintage petrol bowsers

Fuel tax credit rate changes

Posted on | by Allan Hall

Making the correct fuel tax credit claim

If you claim fuel tax credits, multiple rates may apply to your business activity statement (BAS) that is due in October, depending on when you acquired the fuel.

Changes to fuel tax credit occurred on 30 March, 1 July (biodiesel only), 1 August and 29 September 2022.

The easiest way to ensure you are using the correct rate is to use the fuel tax credit calculator.

The temporary reduction of fuel excise duty ended on 28 September 2022. From 29 September 2022:

  • increased fuel tax credit rates apply. You must only apply this increased rate to fuel acquired from this date
  • if you’re an eligible business that uses fuel in heavy vehicles for travelling on public roads, you can claim fuel tax credits. You cannot claim between 30 March to 28 September 2022. This is because the road user charge exceeds the excise duty paid and this reduces the fuel tax credit rate to nil.

Remember to always keep accurate records to support any claims. Your records need to show the type, date and quantity of fuel acquired for business activities.

Your registered tax or BAS agent can help correctly calculate your fuel tax credit and lodge your BAS.

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EOFY blocks

ATO priorities this tax time

Posted on | by Allan Hall

Four priorities for the ATO this tax time

The Australian Taxation Office (ATO) has announced four key focus areas for Tax Time 2022.

The ATO will be focusing on:

  1. record-keeping
  2. work-related expenses
  3. rental property income and deductions, and
  4. capital gains from crypto assets, property and shares.

These ATO’s priority areas ensure that there is an appropriate level of scrutiny on the correct reporting of deductions and income.

Taxpayers can take steps to lodge right the first time

Assistant Commissioner Tim Loh explained that the ATO is targeting problem areas where they see people making mistakes.

“It’s important you rethink your claims and ensure you can satisfy the 3 golden rules,” Mr Loh said.

  1. You must have spent the money yourself and weren’t reimbursed
  2. If the expense is for a mix of income-producing and private use, you can only claim the portion that relates to producing income
  3. You must have a record to prove it.

Record-keeping

With some weeks left until 30 June, start organising the income and deductions records you’ve kept throughout the year. This will guarantee a smoother tax time and ensure you claim the deductions you are entitled to.

For anyone who deliberately tries to increase their refund, falsify records or cannot substantiate their claims, the ATO will be taking firm action to deal with these taxpayers who are gaining an unfair advantage over the rest of the Australian community who are doing the right thing.

Lodge right, no worries

We often see lots of mistakes in July as people rush to lodge their tax returns and forget to include interest from banks, dividend income, payments from other government agencies and private health insurers. For most people, this information will be automatically pre-filled in their tax return by the end of July. This will make the tax return process smoother, save you time, and get your tax return right. If you want to lodge earlier, you must take extra time to manually add all your income.

Available pre-fill information and readiness to lodge can be easily checked in the ATO app this tax time.

NB: While the ATO receives and matches a lot of information on rental income, foreign-sourced income and capital gains events involving shares, crypto assets or property, they don’t pre-fill all of that information for you.

Work-related expenses

Some people have changed to a hybrid working environment since the start of the pandemic, which saw one in three Aussies claiming working from home expenses in their tax return last year.

“If you have continued to work from home, we would expect to see a corresponding reduction in car, clothing and other work-related expenses such as parking and tolls,” said Mr Loh.

To claim a deduction for your working from home expenses, there are three methods available depending on your circumstances. You can choose from the shortcut (all-inclusive), fixed rate and actual cost methods, so long as you meet the eligibility and record-keeping requirements.

Each individual’s work-related expenses are unique to their circumstances. If your working arrangements have changed, don’t just copy and paste your prior year’s claims. If your expense was used for both work-related and private use, you can only claim the work-related portion of the expense. For example, you can’t claim 100% of mobile phone expenses if you use your mobile phone to ring mum and dad.

You can easily keep track of your expenses with myDeductions tool in the ATO app. Just take a photo of the receipt in the app, record the details of the expense and at tax time, simply upload the information directly to your return in myTax or email it to your registered tax agent.

Rental income and deductions

If you are a rental property owner, make sure you include all the income you’ve received from your rental in your tax return, including short-term rental arrangements, insurance payouts and rental bond money you retain.

“We know a lot of rental property owners use a registered tax agent to help with their tax affairs. I encourage you to keep good records, as all rental income and deductions need to be entered manually, you can ask your registered tax agent for assistance. If we do notice a discrepancy it may delay the processing of your refund as we may contact you or your registered tax agent to correct your return. We can also ask for supporting documentation for any claim that you make after your notice of assessment issues,” Mr Loh said.

Capital gains from crypto assets, property and shares

If you dispose of an asset such as property, shares, or a crypto asset, including non-fungible tokens (NFTs) this financial year, you will need to calculate a capital gain or capital loss and record it in your tax return.

Generally, a capital gain or capital loss is the difference between what an asset cost you and what you receive when you dispose of it.

“Crypto is a popular type of asset and we expect to see more capital gains or capital losses reported in tax returns this year. Remember you can’t offset your crypto losses against your salary and wages,” Mr Loh said.

Read more: Tax treatment of cryptocurrency »

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covid test

Tax rules and exemptions for COVID-19 testing

Posted on | by Allan Hall

FBT, COVID-19 tests and the otherwise deductible rule

Be aware of the rules and exemptions regarding COVID-19 testing

Whilst FBT obligations do exist, there are exemptions and deductions that can be granted when providing COVID-19 tests to employees

You may have to pay Fringe benefits tax (FBT) if you:

  • provide your employees or their family members with COVID-19 tests such as a rapid antigen test, or
  • pay for a polymerase chain reaction test.

However, the otherwise deductible rule (or a different concession or exemption) may apply to eliminate or reduce any FBT payable.

Types of benefits that may arise from providing COVID-19 tests

Different types of benefits may arise for FBT purposes when you provide, or pay for, your employees’ or their family members’ COVID-19 tests.

The types of benefit that may arise under the FBT law are:

  • an expense payment benefit – where you pay for, or reimburse, an employee’s or their family member’s, COVID-19 test.
  • a property benefit – where you purchase the COVID-19 tests and give them to your employees or their family members for free or at a discount.
  • a residual benefit – where you provide your employees or their family members with a COVID-19 test that isn’t an expense payment or property benefit.

Exemptions from FBT

Some benefits are exempt from FBT. If an exemption applies, you won’t need to:

  • pay FBT for providing the COVID-19 tests to your employees, or reimbursing them for their cost
  • consider whether the otherwise deductible rule applies.
Work-related medical screening

Work-related medical screening tests are exempt from FBT if both of the following apply:

  • testing is carried out by, or on behalf of, a legally qualified medical practitioner or nurse, and
  • testing is available to all employees.

If only some of your employees get COVID-19 tests, the tests are still exempt if they are offered to all employees.

If the tests you provide or reimburse do not meet these requirements, you may need to pay FBT unless the minor benefits exemption or ‘otherwise deductible rule’ apply.

Minor benefits exemption

This exemption will only apply if:

  • the tests are provided infrequently and irregularly
  • the cumulative value of the tests provided to an employee during the FBT year is less than $300.

The otherwise deductible rule

You can reduce the taxable value of an expense payment, property or residual fringe benefit by what’s known as the otherwise deductible rule.

This is the amount your employee would have been entitled to claim as a once-only income tax deduction if they had provided or paid for the COVID-19 test themselves.

There are special records that must be kept for the otherwise deductible rule to apply.

When the otherwise deductible rule applies to COVID-19 testing

From 1 July 2021, if an employee paid for a COVID-19 test for a work-related purpose they could have claimed a deduction if certain conditions were met.

To have claimed a deduction for the cost incurred to buy or pay for a COVID-19 test, your employee must have:

  • used the test for a work-related purpose, such as to determine if they can attend or remain at work
  • received a qualifying COVID-19 test, such as a
    • polymerase chain reaction (PCR) test through a private clinic
    • other tests in the Australian Register of Therapeutic Goods, including rapid antigen test (RAT) kits

The otherwise deductible rule only applies to the extent that your employee could have claimed the work-related portion of the expenditure on COVID-19 tests as an income tax deduction. For example, if you buy a multipack of COVID-19 tests and allow your employee to use some for private purposes (such as by other family members or for leisure activities), the otherwise deductible rule only applies to the portion of the expense, property or residual benefit used for a work-related purpose.

For the otherwise deductible rule to apply, you must have the appropriate records, including the relevant declaration(s).

When the otherwise deductible rule doesn’t apply

The otherwise deductible rule doesn’t apply:

  • to COVID-19 tests you provide if
    • your employee uses the test for private purposes – for example, to test their children before they return to school or daycare
    • your employee works from home and doesn’t intend to attend the workplace, or
    • you haven’t received the declarations that are required under the FBT law
  • to any travel or parking expenses you pay or reimburse your employees to get their COVID-19 test. This is because these expenses do not have a sufficient connection to your employee obtaining or undergoing a COVID-19 test to be regarded as being incurred in respect of testing them for COVID-19.

Keeping records for COVID-19 tests

To apply the otherwise deductible rule, you must keep records, including:

  • a record of the costs of COVID-19 tests you pay for your employees (including those you reimburse them for) and the dates you paid for them. This may include a receipt or invoice.
  • a completed appropriate employer declaration or employee declaration.

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covid tests

Employee COVID-19 tests now tax deductible

Posted on | by Allan Hall

COVID-19 test expenses

From 1 July 2021, if you’re an employee, sole trader or contractor and you pay for a COVID-19 test for a work-related purpose, you can claim a deduction.

When you can claim COVID-19 testing

From 1 July 2021, to claim a deduction for the cost you incur to pay for a COVID-19 test, you must:

  • use the test for a work-related purpose, such as to determine if you can attend or remain at work
  • get a qualifying COVID-19 test, such as a
    • polymerase chain reaction (PCR) test through a private clinic
    • other tests in the Australian Register of Therapeutic Goods, including rapid antigen test (RAT) kits
  • pay for the test yourself (that is, your employer doesn’t give you a test or reimburse you for the cost)
  • keep a record to prove that you incurred the cost (usually a receipt) and were required to take the test for work purposes.

You can only claim the work-related portion of your expense on COVID-19 tests. For example, if you buy a multipack of COVID-19 tests and use some for private purposes (such as by other family members or for leisure activities), you must only claim for the portion of the expense you use for a work-related purpose.

When you can’t claim COVID-19 testing

You can’t claim the cost of a COVID-19 test where any of the following apply:

  • you use the test for private purposes – for example, to test your children before they return to school or daycare
  • you receive a reimbursement for the expense from your employer or another person
  • you work from home and don’t intend to attend your workplace.

You also can’t claim a deduction for the travel or parking expenses you incur to get your COVID-19 test because these expenses don’t have a sufficient connection to you using a COVID-19 test.

Keeping records for COVID-19 tests

You need to keep records of COVID-19 tests to demonstrate that you paid for the test and the test was required for work-related purposes. This may include a receipt or invoice, and correspondence from your employer stipulating the requirement to test.

If you don’t have a record of your expenses before the law changed on 31 March 2022, the ATO will accept reasonable evidence of your expenses. Reasonable evidence is documentation that shows the cost of the test and the requirement to take it for work purposes. This may include:

  • bank and credit card statements
  • a diary or other documents, including receipts, that show a pattern of buying COVID-19 tests after the law change that could reasonably have applied from 1 July 2021.

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