The Kitchen Bench


 

On the 30th June 2017, we hosted a huge crowd to our official office opening party. A great afternoon/evening was enjoyed by many of our clients, neighbours and colleagues. Luckily our new office has a full kitchen in the middle of it, which made catering for this night so much easier. It is also fortunate that we have a full size bath that we could fill up with drinks for the night.

A new year brings even more new changes at Lidgerwoods Accountants.

We happily welcome Kylie Sanders to our team as our Office Manager. She will be assisting Marc, Sophie & Louise to meet all your needs in the busy tax year ahead. Kylie is not new to our firm. She has been a client of ours for over 15 years, and brings a wealth of previous office management experience with her.
We have again attached some articles to this newsletter – some of which will be relevant to everyone, and some that won’t, but still worth a read.

Keep taxing on and remember:

“a fine is a tax for doing something bad, a tax is a fine for doing well”.

We look forward to seeing you at our kitchen bench over the coming year.
The Team at Lidgerwoods Accountants – Marc, Sophie, Louise & Kylie

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Deductibility of expenditure on a commercial website

The ATO has released a public taxation ruling covering the ATO’s views on the deductibility of expenditure incurred in acquiring, developing, maintaining or modifying a website for use in the carrying on of a business.

Importantly, if the expenditure is incurred in maintaining a website, it would be considered 'revenue' in nature, and therefore generally deductible upfront.

This would be the case where the expenditure relates to the preservation of the website, and does not:
- alter the functionality of the website;
- improve the efficiency or function of the website; or
- extend the useful life of the website.

However, if the expenditure is incurred in acquiring or developing a commercial website for a new or existing business, or even in modifying an existing website, it would generally be considered capital in nature (in which case an outright deduction cannot be claimed).

Editor: Please contact Lidgerwoods Accountants if you want any guidance about the ATO's latest views on this important issue that affects many business clients.


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Costs of travelling in relation to the
preparation of tax returns

 

The ATO has released a Taxation Determination confirming that the costs of travelling to have a tax return prepared by a “recognised tax adviser” are deductible.

In particular, a taxpayer can claim a deduction for the cost of managing their tax affairs. 

However, apportionment may be required to the extent that the travel relates to another non-incidental purpose.

Example – Full travel expenses deductible
Maisie and John, who are partners in a sheep station business located near Sydney, travel to Wodonga for the sole purpose of meeting with their tax agent to finalise the preparation of their partnership tax return.

They stay overnight at a hotel, meet with their tax agent the next day and fly back to Sydney that night.

The full cost of the trip, including taxi fares, meals and accommodation, is deductible.

Example – Apportionment required

Julian is a sole trader who carries on an art gallery business in Alice Springs.

He travels to Wodonga for two days to attend a friend's birthday party and to meet his tax agent to prepare his tax return, staying one night at a hotel.

Because the travel was undertaken equally for the preparation of his tax return and a private purpose, Julian must reasonably apportion these costs.

In the circumstances, it is reasonable that half of the total costs of travelling to Wodonga, accommodation, meals, and any other incidental costs are deductible.

Editor: Although the ATO's Determination directly considers the treatment of travel costs associated with the preparation of an income tax return, the analysis should also apply where a taxpayer is travelling to see their tax agent in relation to the preparation of a BAS, or another tax related matter.

 


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Who is assessed on interest on bank accounts?

As a general proposition, for income tax purposes, interest income on a bank account is assessable to the account holders in proportion to their beneficial ownership of the money in the account.

The ATO will assume, unless there is evidence to the contrary, that joint account holders beneficially own the money in equal shares.

However, this is a rebuttable presumption, if there is evidence to show that joint account holders hold money in the account on trust for other persons.

Example – Joint signatory (but no beneficial ownership of account)

Adrian's elderly aunt has a bank account in her name, and Adrian is a joint signatory to that account. Adrian will only operate the account if his aunt is unable to do so due to ill health, but all the funds in the account are hers, and Adrian is not entitled to personally receive any money from the account.

Adrian does not have any beneficial ownership of the money in the account and is therefore not assessable on the interest income.

Children’s bank accounts

In relation to bank accounts operated by a parent on behalf of a child, where the child beneficially owns the money in the account, the parent can show the interest in a tax return lodged for the child, and the lodgment of a trust return will not be necessary.

Example – Child savings account – parent operates as trustee

Raymond, aged 14, has accumulated $7,000 over the years from birthdays and other special occasions. Raymond's mother has placed the money into a bank account in his name, which she operates on his behalf, but she does not use the money in the account for herself or others.

Raymond earns $490 in interest during an income year and, since he has beneficial ownership of the money in the account, he is therefore assessable on all of the interest income.

However, as Raymond is under 18 years of age, he will be subject to the higher rates of tax that can apply to children. If Raymond shows the interest in his tax return for that income year, his mother will not need to lodge a trust tax return.


img04Extension of the $20,000 SBE
Immediate Deduction Threshold

In the 2017/18 Federal Budget handed down on 9 May 2017, the Federal Government announced that it intended to extend the ability of Small Business Entity (or ‘SBE’) taxpayers to claim an outright deduction for depreciating assets costing less than $20,000 until 30 June 2018. This Budget Night announcement has now been passed into law.

Prior to the relevant legislation being passed into law, the outright deduction threshold for SBEs in relation to depreciating assets was scheduled to revert back to $1,000 as of 1 July 2017. Now that this change has become law, the threshold is scheduled to revert back to only $1,000 as of 1 July 2018.

To qualify for an immediate deduction for depreciating assets purchased by an SBE taxpayer costing less than $20,000, the asset needs to be first used or installed ready for use on or before 30 June 2018.

Editor: The ‘aggregated turnover’ threshold to satisfy the requirements to be an SBE taxpayer has increased from $2 million to $10 million, as of 1 July 2016. As a result, more business taxpayers than ever before will be eligible for the $20,000 immediate deduction for depreciating assets.

Please contact our office if you need any assistance in determining if your business is an SBE, whether an asset purchase you are considering will qualify as a “depreciating asset” and/or what constitutes being “used or installed ready for use”.

 


img05Simpler BAS is here

The ATO is reducing the amount of information needed to be included in the business activity statement (or ‘BAS’) to simplify GST reporting.

From 1 July 2017, Simpler BAS will be the default GST reporting method for small businesses with a GST turnover of less than $10 million.

In relation to GST, small businesses will only need to report:
G1 - Total sales
1A - GST on sales
1B - GST on purchases.

This will not change a business’ reporting cycle, record keeping requirements, or the way a business reports other taxes on its BAS.

Simpler BAS is intended to make it easier for businesses to lodge their BAS. It should also reduce the time spent on form-filling and making changes that don't impact the final GST amount.

The ATO will automatically transition eligible small business' GST reporting methods to Simpler BAS from 1 July 2017.

Small businesses can choose whether to change their GST accounting software settings to reduce the number of GST tax classification codes.

Editor: Call our office if you need help with the transition to Simpler BAS or to decide whether your business will use reduced or detailed GST tax code settings in its GST accounting software.


img06Change to deductions for personal super contributions

Up until 30 June 2017, an individual (mainly those who are self-employed) could claim a deduction for personal super contributions where they meet certain conditions. One of these conditions is that less than 10% of their income is from salary and wages. This was known as the “10% test”.

From 1 July 2017, the 10% test has been removed. This means most people under 75 years old will be able to claim a tax deduction for personal super contributions (including those aged 65 to 74 who meet the work test).

Eligibility rules

An individual can claim a deduction for personal super contributions made on or after 1 July 2017 if:

- A contribution is made to a complying super fund or a retirement savings account that is not a Commonwealth public sector superannuation scheme in which an individual has a defined benefit interest or a Constitutionally Protected Fund;

- The age restrictions are met;

- The fund member notifies their fund in writing of the amount they intend to claim as a deduction; and

- The fund acknowledges the notice of intent to claim a deduction in writing.

Concessional contributions cap

Broadly speaking, contributions to super that are deductible to an employer or an individual, count towards an individual’s 'concessional contributions cap'.

The contributions claimed by an individual as a deduction will count towards their concessional contributions cap, which for the year commencing 1 July 2017 is $25,000, regardless of age. If an individual’s cap is exceeded, they will have to pay extra tax.

Editor: We suggest you contact your financial advisor to discuss your exact circumstances before acting upon any of the information above. But this will now allow a lot more clients to claim a tax deduction for personal superannuation contributions should they wish to do so.


Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.


Lastly we welcome your feedback.  If you found this E-Newsletter very useful (or not?),
we’d appreciate your feedback either way.

'The Team' at Lidgerwoods Accountants

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