Spring 2022

Welcome to our Spring newsletter. September means it’s football finals season and the beginning of warmer weather. This creates more opportunities for people to be outdoors & with friends, improving mental health.

September is also the the end of the 1st quarter of the financial year, time to review & reflect on your personal & business financial health, how are you tracking? We are always here to help.

Interest rate rises reduce disposable income & increase financial pressure on many. There is no better time to ensure you have strong financial foundations & habits in place to provide financial stability & confidence. Razorback offers Money Management services to help individuals & businesses, contact us to learn how you can benefit.

In August, the focus was on US Federal Reserve chair Jerome Powell’s speech at the annual Jackson Hole business gathering on August 26, and he was blunt. To hose down talk of interest rate cuts in 2023, he said the Fed was focused on bringing US inflation down to 2% (from 8.5% now), even at the risk of recession. He said this will “take some time”, will likely require a “sustained period of below trend economic growth”, and households should expect “some pain” in the months ahead. The S&P500 share index promptly fell 3.4% and bond yields rose. Economists expect the US central bank will continue lifting rates each month for the remainder of 2022.

In Australia, economic conditions are less gloomy. Australia’s trade surplus was a record $136.4 billion in 2022-23. Unemployment fell to 3.4% in July while wages growth rose to an annual rate of 2.6% in the year to June, the strongest in 8 years but well below inflation. The ANZ-Roy Morgan consumer confidence index rose slightly in September to a still depressed 85.0 points while the NAB business confidence index jumped to +6.9 points in July, well above the long-term average of +5.4 points. Half-way through the June half-year reporting season, CommSec reports ASX200 company profits increased 56% in aggregate while dividends are 6% lower on a year earlier.

The Aussie dollar fell more than one cent over the month to close around US68.5c. Aussie shares bucked the global trend, finishing steady over the month.

PAYROLL TAX & WORKERS COMPENSATION: If you pay wages you could be audited for Payroll Tax & Workers Compensation, regardless of whether you are registered or not. Contact us to save unnecessary stress and have the confidence you are meeting your payroll obligations.

As always, if you would like to discuss the contents of this newsletter don’t hesitate to contact me.

Kind regards,

Daniel

Tax deductions: 18 things you didn’t know you could claim

Small business owners can often fall into old habits at tax time, without considering some of the less obvious or most recent ATO tax deductions available. Make sure you claim absolutely everything you’re entitled to and minimise tax for the 21/22 EOFY.

To keep a healthy bottom line, businesses need to be smarter and sharper every financial year.

With the end of financial year (EOFY) upon us, it’s about this time that people begin to think about tax – especially what they can claim as deductions.

What are tax deductions?

A tax deduction is a claimable expense item that is directly related to earning your business income, and that can be recorded on your tax return.

How do tax deductions work?

You can reduce your taxable income by the amount you spent, which lowers the amount of tax you pay and boosts your tax refund.

When completing your tax return, there are a number of deductions you can claim against expenses related to your work.

Things like travel expenses, home office expenses, education and even internet and mobile phone connection expenses may be tax deductible.

Tax deductions that are commonly overlooked

The following list details the most commonly overlooked deductions you can claim when completing your tax return.

Make sure you check your individual situation with your registered tax agent as the specifics may change from business to business.

1. Prepay expenses

With tax deductions, every little bit counts. Prepaying your expenses can bring forward your tax deductions so you don’t need to wait another year to get it.

You can prepay expenses such as subscriptions, business travel expenses, training events, leases, rent, phone, internet, insurance and business asset repairs, not exceeding more than one year.

2. Review your stock and inventory

Take a good look at your stock, identify any damaged or obsolete stock and write it down or write it off. This exercise will impact the value of the trading stock and your profit margins.

You will also need to consider how to value your stock trading every financial year, as you may be entitled to a tax deduction when the opening stock exceeds the closing stock.

3. Review your asset acquisition

Do you need new assets? Now may be a good time to purchase them.

As part of the Federal Government’s Coronavirus Stimulus Package, the Instant Asset Write-Off threshold increased from $30,000 to $150,000 (net of GST) per asset acquired.

The items purchased can be brand new or second-hand and need to relate to your business. This deduction applies to assets purchased prior to 31 December 2021 and it must have been installed and ready for use by 30 June 2022. Paying for it or receiving an invoice is not enough.

4. Union fees

If you pay these each year, you’re entitled to a tax deduction under ‘D5-Other’ work-related expenses.

5. Donations

Don’t get caught out on this one. Donations of $2 or more to an appropriate charitable organisation is tax deductible if you have a receipt.

But not all deductions are equal. Donations must be made to a Deductible Gift Recipient in order to be claimable. Most private donations such as Go Fund Me causes are not deductible.

6. Rental property expenses

Rental property expenses often go unclaimed. The most-forgotten deductions are:

• • Bank fees

 

• • Gardening and lawn mowing

 

• • Pest control

 

• • Security patrol fees

 

• • Secretarial and bookkeeping fees

 

• • Travel and car expenses for rent collection

 

• Inspections of property and maintenance.

7. Working-from-home expenses

With COVID-19 causing many people to work from home, the ATO have introduced a temporary 80 cents per hour, all-inclusive claim amount for employees. It’s limited to the period from 1 March 2020 to 30 June 2022 and all you need are timesheets, rosters, diary or other documentation to prove the house you worked from home.

Best of all, it’s an all-inclusive rate, so there’s no need for receipts or invoices.

8. Home office expenses

If you work from home, you may be able to claim “occupancy cost” and the cost of using your personal computer, software, equipment, furniture, lighting, heating and a percentage of your rent/mortgage as a tax deduction.

But you may not get the full main residence exemption if your home is your principal place of business, for more information visit the ATO website.

9. Income-protection insurance

You’re entitled to a tax deduction for insurance premiums paid against the loss of income. Remember, though, that this doesn’t include life insurance, trauma insurance or critical-care insurance.

10. Medical expenses

You can claim a deduction for net eligible expenses for disability aids, attendant care or aged care.

11. Work-related car expenses

Business owners who use their personal car for work-related reasons, apart from driving to and from work, can usually claim fuel and maintenance costs as a tax deduction.

To be eligible, you must be the owner of the car and your travel must be part of your working day.

Common examples are driving between offices, special trips to the post office or bank, or moving from one job site to another.

12. Internet expenses

If you ever work from home and you have your internet connection in your name, then it’s likely you could claim your internet expenses as a deduction. Estimate your monthly work use as a percentage of the total household use.

13. Mobile-phone expenses

As a business owner, you can claim the cost of your work-related calls, not your entire phone bill.

It’s a good idea to keep a logbook of when you use your personal phone, to determine the average percentage of your calls that are work-related.

14. Self-education expenses

You can claim self-education expenses if there’s a connection between the course and your role in your business. You could be entitled to a tax deduction for expenses including the following:

• • Textbooks, professional and trade journals

 

• • Stationery

 

• • Photocopying

 

• • Computer expenses

 

• • Student union fees

 

• • Student services and amenities fees

 

• • Accommodation and meals, only when participating in your course requires you be away from home for one or more nights

 

• • Running expenses if you have a room set aside for self-education purposes – such as the cost of heating, cooling and lighting that room while you are studying in it

 

• Allowable travel expenses.

Self-education expenses are broken into five categories. If all your self-education expenses fall into ‘category A,’ then you can reduce your deduction by $250.

15. Sun protection

You’re entitled to a tax deduction for sunglasses if, as part of your employment, you’re required to work outside for prolonged periods.

There’s no limit on how much you can spend on sunglasses, but remember that if they cost more than $300, the ATO expects that they should then last for more than 12 months. (You should claim the depreciation on the glasses rather than an upfront deduction.)

16. Laundry expenses

You can claim a deduction for the cost of buying and cleaning occupation-specific clothing, protective clothing and unique, distinctive uniforms.

You can use a reasonable basis to calculate an amount to claim as a tax deduction such as $1 per load for work-related clothing, or 50 cents per load if other laundry items were included.

17. Cost of managing your tax affairs

Did you use a tax agent to prepare and lodge your tax return last year? If you did, then you can claim the amount you paid last year on this year’s tax return.

On your tax return, simply put the amount you paid into section ‘D10 – Cost of Managing Tax Affairs’. The fees you pay for tax return help are always tax deductible.

18. Financial loss and bad debts

Don’t overlook the possibility of facing a financial loss this year. Speak to your financial adviser to discuss steps that can be taken to minimise the impact, and what can be done to help offset the loss against other incomes, such as salaries and wages.

You’ll also need to prove that you have made a genuine attempt to recover any bad debts that may have arisen. Your financial advisor can explain how to document the debt as evidence the amounts were written off before the end of the financial year.

What can I claim without receipts?

The ATO says that without a receipt, you can’t claim a deduction. As a rule, it’s best practice to keep a receipt for every single business-related purchase. This makes things as clear and straightforward as possible.

Holding on to your receipts will save you time and stress at tax time. Plus, it’s easy to catch up on this part of your bookkeeping work with the MYOB Capture app.

But sometimes getting a receipt just isn’t possible – or it becomes damaged or faded. In cases like these, the ATO says that you can claim up to a maximum value of $300 without receipts.

The information provided here is of a general nature for Australia and should not be your only source of information. Please contact us as each small business’ circumstances will vary for end of financial year.

Source: MYOB May 2022

Reproduced with the permission of MYOB. This article by Debra Anderson was originally published at https://www.myob.com/au/blog/overlooked-ato-tax-deductions-minimisation-tips/

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.

Tax and your online side hustle

With money becoming tighter as inflation rises, many people are looking to make some extra income from a ‘side hustle’.

As we move towards a cashless society and transact more online, it’s becoming easier for the ATO to follow the money trail. Whether you rent your caravan on Camplify, or even if you simply sell household items on Gumtree, the tax man will be paying attention.

Not all online income needs to be declared, but it’s important to understand the difference between an online hobby and a business. Otherwise, you could find yourself with an unexpected tax bill.

Business or a hobby?

Even with a well-paying day job, many people have an online side hustle for fun or to earn extra cash.

Whether your online activity is just a hobby or a business makes a big difference.

Income earned from hobby activities is non-assessable for tax purposes, while income from a business is assessable and must be declared in your tax return. This could include revenue from an eBay shop, rental income through platforms such as Stayz, and fees from work sourced from Airtasker.

There is no legislative definition of ‘carrying on a business’, but the ATO provides a series of questions to help you decide.

For example:

• • Do you have an online ‘shop’ and pay fees?

 

• • Is your main intention to make a profit?

 

• • Do you make regular sales?

 

• • Do you manage your online sales activities as if they are a business?

 

• • Do you advertise your online space?

 

• Do you keep records and have a business plan?

Every ‘yes’ means you are more likely to be carrying on a business.

Side businesses and tax

Where your side activities are a business, you must declare all your secondary income, regardless of how much or how little you make each year.

If your side hustle is considered a business for tax purposes, it means your business-related costs are tax deductible and you may be able to access the various business tax concessions on offer.

For side businesses where your annual turnover exceeds $75,000, you need to register for GST. This tax needs to be added to all your taxable sales and paid to the ATO every quarter.

With online activities that remain a hobby the income is non-assessable and you do not have compliance obligations, but you can’t claim a deduction for your costs.

ATO surveillance and data-matching

Although some taxpayers think their online hustle will go unnoticed, the ATO has vast data-matching powers to help it identify any unreported income – wherever it is earnt.

In recent years the tax regulator has made it clear online generated revenue is an important target for its non-compliance surveillance activities.

The ATO receives and collates information from a wide range of third-party sources, including banks, payment systems and online selling platforms providers such as eBay, Amazon Commercial Services, Airbnb and Uber. More than 600 million transactions are reported to the tax office each year.

The ATO also has the power to collect information for its data-matching projects to address concerns about specific industries, issues or tax risks, and one of its ‘special purpose acquisition data’ programs covers online selling.

Under its online selling data-matching program, the ATO tracks the activity of registered online sellers and obtains details of businesses with annual trading activity in goods and services of $12,000 or more.

Get professional assistance

If your side hustle is successful and becomes more than a spare time activity, it makes sense to talk to an accounting professional well before tax time. We can help you decide whether your activities will be considered a hobby or a business.

A business must substantiate any tax deductions it claims, so you need to keep detailed records of all your business-related activities and ensure you lodge your business activity statements (BAS) and tax returns.

We can also help you work through your tax obligations such applying for an ABN, registering for GST, and establishing a proper recordkeeping system for your income and expenses. You may also need help with preparing and lodging your quarterly BAS.

If you need assistance with your growing online side business or meeting your tax obligations, call our office today.

Secrets of success: learning from high achievers

‘If I have seen further that is by standing on the shoulders of giants’ – Isaac Newton

We all want to be the best that we can be but achieving your version of success takes effort. You can take a step in the right direction by learning from those who have gone before you and achieved success in their various fields.

Success is a concept that is different for every person. Whether it means having a great career, thriving business, loving family or achieving excellence on the sports field or in your personal endeavours, achieving your definition of success can provide a profound sense of accomplishment.

There is a lot we can learn from successful people. They tend to share common traits that contribute to their success in life and can help you on your journey to achieve your goals.

Dream big and follow your dream

Successful people have a vision and pursue that vision. Mary Barra, CEO of General Motors had a vision for the company which has seen them invest millions in electric and self-drive vehicles, and in ride share applications, anticipating future customer needs. She also pivoted production during the pandemic to help make critically needed ventilators.

To support that sort of visionary thinking, make sure you have some time in your life for introspection. It can help to be quite concrete about your ambitions and write down exactly what you want to achieve, then start to think about how you’ll go about realising your dreams.

Set short term realistic goals

Once you have identified what you want to achieve the end goal can seem a little daunting. A good way to work towards the success you dream of is to set short term, achievable, incremental goals.

Six-time Olympic track and field medallist Jackie Joyner-Kersee, in her memoir speaks of how setting incremental goals helped her. ‘So you want to jump 23 feet in a long jump but you only jump 20 feet right now. Why not go for 20 feet 5 inches? If I was running, I aimed to see myself improve a tenth of a second or half of an inch if I was jumping.’

Think about the steps you need to take to reach success and approach your goals one step at a time.

Move out of your comfort zone

While it may not feel like it at the time, a little bit of discomfort goes a long way in terms of nudging you along the path to success.

Jeff Bezos, former CEO of Amazon who also happens to be the world’s richest person, attributes much of his success to getting outside his comfort zone. He has even gone as far as to suggest to his employees that some level of discomfort can spur one on to greatness “I constantly remind our employees to be afraid, to wake up every morning terrified”.

Learn from losing and recover from failure

Success takes time and can also mean overcoming adversity and failure.

Walt Disney’s first film production company went bankrupt, but his legacy is as an extraordinarily successful creative whose visions as an animator, filmmaker and theme park developer resulted in one of the most successful and powerful entertainment companies in the world.

The critical thing that successful people do when they have experienced failure is to reframe the failure and think about not what they have lost, but what they learned from the experience. They then apply that hard-earned knowledge to their next venture.

Ask for help and get the best from others

You don’t have to go it alone on your path to success. Founder of Boost Juice, Janine Allis, asked other franchise operators for tips on how to set up and run a successful franchise. “If you surround yourself with the right people who bring out the best in you and have your back, not only will you enjoy the journey, but it also increases your chances of success,” says Janine.

And finally, one fundamental trait shared by all successful people is self-belief. Believe that you have the power to make your dreams come true.

How do SMSFs invest?

As Australia’s system of compulsory superannuation celebrated its 30th anniversary in July, this is a good time to take a closer look at one of super’s biggest success stories – the number of people deciding to take control of their retirement savings with a self-managed super fund (SMSF).

There are now almost 607,000 SMSFs worth a combined $894 million, with 1.1 million members.

While one of the benefits of running your own fund is the flexibility to chart your own course, concerns have been raised over the years that SMSFs are too heavily invested in cash and shares and not as well diversified as large public funds. The latest figures show these concerns are largely unfounded.

Comparing SMSFs and large funds

SMSF administrator, SuperConcepts recently surveyed 4,500 funds to find out how SMSF trustees invest and identify any emerging trends.ⁱ They also wanted to see how SMSFs compare with large APRA-regulated funds including – industry, retail, public sector and corporate funds – in terms of their investments.

The table below shows the overall asset breakdown as at 31 March 2022.

Asset type	SMSF %	APRA fund %
Cash and short-term deposits	12.2	9.1
Australian fixed interest	8.4	10.0
International fixed interest	2.1	7.9
Australian shares	40.0	28.5
International shares	16.4	27.0
Property	16.0	8.5
Other (incl. infrastructure, cryptocurrency, commodities and collectables)	4.9	9.0
Total	100	100

Source: SuperConcepts

Several differences stand out:

• • SMSFs have a higher level of cash and short-term deposits, although not massively so.

 

• • SMSFs hold more Australian shares and property

 

• APRA funds hold more international shares and fixed interest, and more alternative assets.

At first glance, these differences conform to the stereotype of SMSFs being too dependent on cash, Australian shares and property.

However, the preference for cash may come down to a higher proportion of SMSF members in pension phase (45 per cent of SMSFs are partly or fully in pension phase according to the ATO). The more members a fund has in pension phase, the more cash and liquid investments it needs to cover benefit payments.

Also, the differences are not so stark when you group assets. For instance, cash and fixed interest combined amount to 22.7 per cent for SMSFs and 27.0 per cent for APRA funds. Similarly, local and international shares (56.4 per cent for SMSFs, 55.5 per cent for APRA funds) and property and other (20.9 per cent vs 17.5 per cent ).

It’s likely that the differences within these broad asset groupings are driven by access to different markets, and SMSF trustees being more comfortable picking investments they know such as local shares and property.

What’s more, while big funds can invest directly in large infrastructure projects with steady capital appreciation and reliable income streams, SMSF investors may be pursuing a similar strategy but with real property instead.

Top 10 SMSF investments

Whether it’s the familiarity factor or ease of access, the top 10 investments by value held by SMSFs in the SuperConcepts survey were all Australian shares. As you might expect, the major banks dominate the top 10, along with market heavyweights BHP, CSL and Telstra.

Another thing the top 10 have in common, apart from being household names and easy to access, is dividends. Just as SMSFs in retirement phase hold higher levels of cash to fund their daily income needs, high dividend paying shares are prized for their regular income stream.

Use of ETFs and managed funds

While SMSFs hold large sums in direct Australian shares, diversification improves markedly when you add investments in Australian and international shares held via ETFs and managed funds.

The SuperConcepts survey found almost one third of SMSF investments by value are held in pooled investments. The highest usage is for international shares and fixed interest, where 75 per cent of exposure is via ETFs and managed funds.

As it’s still relatively difficult to access direct investments in international shares, it’s not surprising that global share funds account for eight of the top 10 ETFs and managed funds.

This latest research shows that the diversification of SMSF investment portfolios is broadly comparable to the big super funds. After 30 years of growth and a new generation taking control of their investments, the SMSF sector has well and truly come of age.

If you would like to discuss your SMSF’s investment strategy or you are thinking of setting up your own fund, give us a call.

i https://www.superconcepts.com.au/insights-and-support/news-and-media/detail/2022/06/19/superconcepts-relaunches-quarterly-smsf-investment-patterns-survey

Tax Alert September 2022

With the tax regulator taking a more aggressive approach to tax debts and reviewing work from home deduction rules, tax issues could become a higher priority in 2022-23.

Here’s a roundup of some of the latest developments in the world of tax.

Consultation on working from home deductions

Taxpayers could face the prospect of new rules when it comes to claiming working from home deductions after the ATO announced it was undertaking a targeted consultation.

Now the temporary shortcut method for working from home deductions has ended (available 1 March 2020 to 30 June 2022), the ATO is currently refreshing its approach to the traditional fixed rate method of calculating work from home deductions.

The regulator is consulting tax practitioner representatives and expects discussions to be completed in October 2022, with any new rules for the current financial year to be announced after this.

Offsetting of tax debts resumes

After taking a lenient approach during the pandemic, the tax man has begun chasing outstanding tax debts by sending taxpayers letters reminding them about existing debts placed on hold.

During the 2022-23 financial year, the ATO will recommence offsetting tax refunds or credits to pay off a taxpayer’s existing tax debts.

In some cases, tax credits will also be used to pay off debts owed to other government agencies such as Centrelink.

JobMaker Hiring Credit open

The seventh claim period for JobMaker Hiring Credit payments is now open and will end on 31 October 2022.

The scheme allows businesses to claim the credit for up to a year for each eligible employee hired between 7 October 2020 and 6 October 2021.

Eligible employers can nominate additional eligible employees through their STP-enabled software and claim using ATO Online Services or their accountant.

ATO app for sole traders

The ATO is encouraging sole traders to download and use the ATO app for a more personalised experience when viewing their tax lodgments and payment due dates.

The app also allows sole traders to check the progress of their tax return, view their income tax and activity statement accounts, access transactions and payment plan details and make payments in ATO online.

Useful tools and calculators such as myDeductions and the Tax Withheld Calculator are also available, together with a Business Performance Check Tool allowing you to compare your business performance with others in your industry.

Thresholds for 2022-23 car claims

The maximum value for calculating depreciation on the business use of a car first used or leased during 2022–23 has increased to $64,741.

The car limit is indexed annually in line with CPI movements and represents the threshold limit on the cost you can use to work out depreciation on a passenger vehicle.

If you purchase a vehicle priced over the car limit, your maximum claimable GST credit is $5,885 in 2022-23.

From 1 July 2022, the luxury car tax (LCT) threshold has also increased. The new threshold for fuel efficient vehicles is $84,916 (up from $79,659) and for all other vehicles it increases to $71,849 (up from $69,152).

Crypto not taxed as foreign currency

The government has announced crypto currencies will continue to be excluded from foreign currency arrangements for tax purposes. Capital gains tax (CGT) will continue to apply to crypto assets held as investments.

The announcement will be backdated to 1 July 2021 to ensure a consistent tax requirement for crypto asset holders.

New rate for claiming car expenses

Taxpayers electing to use the cents per kilometre method when calculating work related car expenses in their income tax deductions have a new kilometre rate to use.

From 1 July 2022, a 78 cents per kilometre rate applies. This rate will remain in place in subsequent income years until varied by legislation.

Director ID reminder

The deadline is approaching for directors to apply for their director ID – a unique 15-digit identifier.

From 1 November 2021 directors of all businesses, including directors of self-managed super fund (SMSF) corporate trustees, need a director ID. Anyone who was a director before that date has until 30 November 2022 to apply.

Directors appointed between 1 November 2021 and 4 April 2022 had to apply within 28 days of their appointment. From 5 April 2022, intending directors must apply before they are appointed.