October 2022

It’s October and the footy finals are over, the 1st quarter of the financial year is over & its time to look forward to summer!

We are working with our clients reviewing their September quarter financial results & planning for the future. Contact us to book in a time to have your financials reviewed.

In Canberra, Treasurer Jim Chalmers is warming up for his first Budget on October 25 against a background of mounting economic pressures.

In September, persistently high inflation and aggressive rate hikes by the world’s central banks put global share and bond markets under pressure. The US Federal Reserve has lifted rates seven times this year, but US inflation remains at 8.3%. There is now growing fear that central banks may push the world into recession. In a surprise twist, the Bank of England (which has also lifted rates seven times this year) was forced to switch back to Quantitative Easing, buying government bonds to support the British pound which crashed to a record low in response to a stimulatory mini-Budget released by the new Conservative Party leadership. This led to a late relief rally on global sharemarkets and a fall in the US dollar and global bond yields. Even so, major global sharemarkets finished the month down 6% or more.

In Australia, the picture is a little brighter. Economic growth was up 3.6% in the year to June. Company profits are also strong, up 28.5% in the year to June, and unemployment remains low, at 3.5% in August. While inflation eased from 7% in July to 6.8% in August, due to falling petrol prices, it is still well above the Reserve Bank’s 2-3% target. Aussie consumers continue to spend at record levels, pushing up retail spending by 19.2% in the year to August, and petrol prices are set to increase by at least 22c a litre after the reinstatement of the fuel excise. Both will put upward pressure on inflation and interest rates.

The Aussie dollar fell more than 3c against the surging US dollar in September, to US65c.

ATO focus on rental properties

Rental property owners are now one of the ATO’s top targets after it found nine out of ten tax returns reporting rental income and deductions contained at least one error.ⁱ

The tax office estimates it’s missing out on around $1.5 billion due to over-claiming of rental property expenses and omission of rental income.

Growing interest in rental property tax

Around 2.2 million individuals have an interest in a rental property in Australia. In a recent media release the ATO warned these taxpayers they are under the spotlight as rentals are “an area that’s easy to get wrong, and needs extra care when lodging”.ⁱⁱ

It’s urging property owners to carefully review their rental property records and ensure they understand the income they need to declare and what expenses can be correctly claimed as a deduction.

Declare all rental income

These days the ATO receives rental income data from a range of sources, including sharing economy platforms, rental bond authorities, property management software providers and land title authorities.

This allows the ATO to spot rental income being charged to a tenant but not declared. Landlords must include all rental income, whether it’s from short-term rental arrangements or from rental-related sources like insurance payouts and retained bond money.

Get your expense claims right

Although landlords can deduct many expenses relating to a rental property, claims need to stay within the rules.

Some expenses can be claimed immediately (such as management fees, council rates and insurance premiums), while others (loan interest, borrowing expenses and capital works) must be claimed over time.

Major capital works (such as replacing the property’s roof or existing kitchen) need to be claimed over a number of years.

Depreciating assets (such as a new dishwasher or oven) are claimed over their effective life, although items costing under $300 can be claimed immediately.

If you refinance your rental property loan or draw down on it for private expenses like a holiday, the loan interest relating to the private expense cannot be claimed as a deduction.

Claiming for private usage

Special care is needed if you use your property for certain periods, stop renting it out for a time, or allow family or friends to stay at cheaper rates.

You can’t claim deductions for these periods as the property is not being used to produce rental income. Normal annual expenses must be apportioned to omit these non-income periods.

Deductions also can’t be claimed if you pretend your property is available for rent when it isn’t, or if you place unreasonable restrictions on a potential tenant.

Common mistakes

According to the ATO, the most common tax error relates to apportioning expenses. If you don’t split your expenses – or do it incorrectly – you may find your return being queried or adjusted.

Another mistake is claiming for all the cost of purchasing your property. Costs such as conveyancing fees and stamp duty are used when working out if you need to pay capital gains tax (CGT), not as deductions.

Claims for capital works and capital allowances are also a danger area. Repairs directly related to wear and tear and damage while the property is rented can be claimed in the financial year the expense is incurred, but initial repairs for damage when purchased are not immediately deductible.

Failing to keep detailed records covering the income and expenses for your rental property is also a recipe for trouble.
The ATO requires landlords to keep records for five years from when your return is lodged.

Don’t forget other taxes

While the ATO is focussing on income and deduction claims for rental owners, they are not the only tax obligations landlords need to keep in mind.

When you sell your rental property, you may be liable for CGT and detailed records of all your expenditure will be needed to correctly calculate the cost base for the property.

If you are not registered for GST, or if the rental income is from a residential premises, you can include any GST in the rental expenses you claim. GST-registered landlords follow different rules.

You will also need to make PAYG instalment payments if you earn $4,000 or more in rental income. The ATO will inform you if this occurs.

The tax rules around a rental property are complex. If you would like help in this area, contact our office today.

i https://www.ato.gov.au/Media-centre/Media-releases/Tax-time-focus-on-rental-property-income-and-deductions/

ii https://www.ato.gov.au/misc/downloads/pdf/qc70095.pdf

Do you know what business expenses you can claim?

You can generally claim a tax deduction for most expenses you incur, as long as:

• the expense relates directly to earning your business’s assessable income

• you only claim the business-use portion of an expense that’s for a mix of business and private use

• you have records to substantiate your claims.

You can claim deductions for:

• day-to-day operating expenses, such as office stationery and wages, in the year you have to pay (or have paid) for them

• capital expenses, such as machinery and equipment, which are typically of long-term benefit. They can be depreciated over the term of the asset’s life. Alternatively, you may be able to claim an immediate deduction through temporary full expensing.

Business expenses may include motor vehicle, travel, legal, digital product and home-based business expenses, and items related to protecting staff from COVID-19 at work such as hand sanitiser and sneeze or cough guards.

You can claim deductions for super contributions. You can also claim deductions for payments you make to workers (including their wages) as long as you’ve complied with the pay as you go withholding and reporting obligations for each payment.

Keep in mind there are some expenses you can’t claim, such as entertainment or private expenses, traffic fines, and expenses that relate to earning non-assessable income.

Remember, registered tax agents can help you with your tax.

It’s a good idea to keep complete records of expenses throughout the tax year (instead of a representative period) to give you more flexibility.

If you’re a sole trader, you can also use the myDeductions tool in the ATO app to keep records of your business expenses.

Source: ato.gov.au August 2022
Reproduced with the permission of the Australian Tax Office. This article was originally published on https://www.ato.gov.au/Newsroom/smallbusiness/General/Do-you-know-what-business-expenses-you-can-claim-/

Important:
This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. 

Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Embracing change

‘Never let a good crisis go to waste’– Winston Churchill

The past few years have ushered in changes to the way we live, work, and conduct business – at a pace previously unheard of.

What has been termed the ‘new normal’ encompasses many challenges including supply chain disruption and labour shortages, as well as changes to workplaces to accommodate working from home. Business as usual has been redefined, and agility in adapting to change is not just beneficial, but necessary.

Periods of disruption have long proven to be the best time to implement change. The sense of urgency created by a crisis tends to foster collaborative problem solving, and a willingness to innovate and experiment.

So, let’s look at how your business can adapt to change and benefit from the trends that arose as a reaction to this unsettling period.

Embracing digital

Many of the digital business practices implemented during the early days of the pandemic have endured. The use of tools to support collaboration, share knowledge and communicate more effectively has been an enduring win for many businesses. However, despite the recent rapid uptake of digital technologies, according to a KPMG survey, the key challenge facing businesses for the next 3 to 5 years is digital transformation and maximising value from it.ⁱ

With digital transformation comes greater potential for relieving pressure on supply chains by transforming them into ecosystems and embracing process automation which has become a useful tool given current pressures on the labour market.

The key to achieving successful digital transformation, according to research is having the right digital-savvy leaders in place, empowering people to work in new ways, giving day-to-day tools a digital upgrade and communicating frequently via traditional and digital methods.ⁱⁱ

Making the most of your team

Almost one third of businesses are having difficulty with staffing levels, with labour shortages at their worst in 50 years.ⁱⁱⁱ While this creates real challenges, those small businesses who put measures in place to address this proactively will be the best prepared to weather the storm.

It is critical to review your resourcing and ensure you are supporting personnel to be at their most productive at this time, which may entail redefining roles and responsibilities.

New data from the Australian Bureau of Statistics (ABS) has revealed the national turnover or ‘quit’ rate rose to 9.5% over the past year, meaning that retention strategies need to be on the radar of most small businesses.^iv

The good news is that salary is only a small part of employee retention. Strategies like effective onboarding, and selective and careful recruiting can assist to minimise turnover. Many strategies offer significant benefits to the business, for example providing professional development and advancement opportunities is a win-win for personnel and businesses alike and can attract the strongest candidates.

Changes in customer service

The recent crisis ushered in a reliance on digital channels to engage with customers, as well as a need to support better customer self-service and provide more proactive communication. These changes have been embraced by customers. In fact, according to a McKinsey report, about 80 percent of those who used online services more frequently during the crisis intend to continue those habits.^v

Businesses that embrace digital technologies to support customers to ask questions, make bookings, purchase products and sign documents are well positioned to reap the rewards of the digital processes they put into place.

Challenging times certainly usher in periods of innovation and change. Maybe it’s time to review your situation, embrace the remarkable changes that came about as we responded to tough times, and move into the future with a greater sense of confidence and optimism.

i https://home.kpmg/au/en/home/media/press-releases/2022/01/talent-and-digital-transformation-4-january-2022.html

ii https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/unlocking-success-in-digital-transformations

iii https://www.afr.com/work-and-careers/workplace/almost-a-third-of-businesses-unable-to-find-suitable-staff-20220623-p5aw1f

iv https://www.mbanews.com.au/evidence-of-great-resignation-emerges-as-quit-rate-hits-10-year-high/

v https://www.mckinsey.com/au/our-insights/emerging-cautiously-australian-consumers-in-2022

Crackdown on GST fraud

The ATO is cracking down hard on GST frauds after finding a significant number of taxpayers falsely claiming GST refunds.

The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.

The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.

Falsely claiming a GST refund

GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office. It involves more than careless or accidental mistakes, and is undertaken in a deliberate or deceitful way.

In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.

Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.

Rules for claiming GST credits

It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.

You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.

GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.

Purchases that do not include GST in the price (such as bank fees and stamp duty), GST-free items (such as basic food), imported goods if you are not the importer, and purchases between entities within a GST group are all ineligible for GST credits.

Warning signs for GST fraud

The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The tax regulator has significant data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.

Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.

A key point to remember is the ATO does not offer loans or administer COVID-19 disaster payments. Advertisements offering a way to get these types of loans from the ATO by registering fake businesses are a “rort”.

If you are caught

The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.

If you are involved in a fake GST arrangement, the first step is to contact the ATO or your accountant so they can assist you to work through various self-help options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.

Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.

Fraud and compromised IDs

Selling or sharing your myGov credentials may result in other people accessing your personal information and using it for their financial gain.

If you have become involved in a GST fraud because your identity was compromised, you should contact the ATO immediately so additional controls can be placed on your tax account.

Taxpayers who have given their myGov details to a criminal should contact the ATO so it can assist them to protect their identity from being used to commit further crimes, including future tax crimes undertaken in their name.

Wills and powers of attorney

A good estate plan will help make sure your wishes are carried out when you die. It can also help if you become unable to make your own decisions.

Estate plans

An estate plan records what you want done with your assets after your death. It can include documents such as:

• your will

• a testamentary trust (as part of your will)

• superannuation binding nominations

It also covers how you want to be cared for — medically and financially — if you can no longer make your own decisions. This part of your estate plan may be in documents such as:

• any powers of attorney

• a power of guardianship (giving someone the right to choose where you live and to make decisions about your medical care)

• an advance healthcare directive (your needs, values and preferences for your future care)

The documents you choose will depend on your situation and what you’re comfortable to trust others with. Get legal advice if you’re not sure.

You must be over 18 and mentally competent when you draw up your estate plan.

Your will

A will is a legal document stating what you want to happen to your assets when you die. It is part (but not all) of your estate plan.

Your will can cover things like:

• how you want your assets shared

• who will look after your children if they’re still young

• any trusts you want to set up

• how much money you’d like to give to charities

• plans for your funeral

Smart Tip: It’s important to have an up to date will. If you die without one, the law decides who will get your assets — and this may not be who you wanted.

Making your will

You can get your will written by a solicitor (for a fee) or by a Public Trustee. A Public Trustee may not charge if you:

• are a pensioner or aged over 60, or

• nominate them to carry out the instructions in your will (that is, to be your executor)

The rules vary, so visit the Public Trustee office website for your state.

• Australian Capital Territory public trustee and guardian

• New South Wales trustee and guardian

• Northern Territory public trustee

• Queensland public trustee

• South Australia public trustee

• Tasmania public trustee

• Victoria state trustee

• Western Australia public trustee

If you use an online will kit, get it checked by a solicitor or Public Trustee. They can make sure it’s been done properly. If your will isn’t done properly, it will be invalid.

Make sure you put your will in a safe place and tell someone close to you where it is.

Updating your will

It’s important to update your will as your situation changes — for example, if you:

• get married

• divorce or separate

• have children or grandchildren

• have a significant financial change

• lose your spouse (or someone else who is named in your will) through death

Super and your will

A binding nomination directs who your super fund trustee gives your super benefit to when you die. If you don’t nominate someone, the super fund trustee will decide who your money goes to.

Family trusts and your will

If you have a family trust, it continues after your death. The trust determines who gets your assets, even if your will says something different.

Testamentary trusts

A testamentary trust is a trust that is written in your will. It takes effect when you die, and it’s administered by a trustee, who you usually name in your will.

The trustee looks after your assets until your beneficiaries can get them. This is set out in your will, and is either when:

• a child reaches a certain age, or

• a beneficiary achieves a specific goal (for example, they get married or earn a particular qualification)

You may want to consider setting up a trust if your beneficiaries:

• are minors (under 18), or

• have diminished mental capacity, or

• may not use their inheritance well

Another reason to consider a trust is to avoid family assets being:

• split as part of a divorce settlement, or

• part of bankruptcy proceedings

Powers of attorney

A power of attorney is a document where you give someone else the legal right to look after your affairs for you. It’s important to nominate someone that is trustworthy, financially responsible, and likely to be around when you need them.

Find more information from each state or territory to appoint a power of attorney. 

There are different types of powers of attorney:

General power of attorney

This allows someone to make financial and legal decisions for you. It’s usually for a specified time — for example, if you’re overseas and can’t manage your affairs at home.

If you become unable to make decisions yourself, a general power of attorney becomes invalid.

Enduring power of attorney

An enduring power of attorney (or EPA) allows someone to make financial and legal decisions for you. If you become unable to make decisions yourself, an enduring power of attorney will still be valid.

Medical power of attorney

This allows someone to make medical decisions for you if you ever become unable to do so yourself. It doesn’t allow them to make other kinds of decisions.

Legal and financial housekeeping

It will help your family and your executor if you list all the documents you have and where they’re kept.

As well as the documents talked about above, other key documents to keep handy are:

• birth certificate

• marriage certificate

• life insurance

• medical insurance

• Medicare card

• pensioner concession card

• house deeds

• home and contents insurance

• deeds and insurance policies for any other real estate you own

• bank account details

• superannuation papers

• investment documents (securities, share certificates, bonds)

• prepaid funeral plans

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/wills-and-powers-of-attorney

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.