June 2018
SOME FURTHER YEAR END TAX PLANNING SUGGESTIONS
Capital Gains (CGT)
If you have enjoyed a large capital gain this financial year, there may be CGT implications. Consider whether you are sitting on some capital losses (typically shares) and consider realising them prior to 30.6.2018. The ATO does not like ‘wash sales’, i.e. when shares are sold and purchased back on the next day…so speak to us first concerning this.
Another option is to contribute funds into tax deductible super. Note that all individuals have an annual limit of $25,000 across all employers and individual contributions. Be sure not to exceed this limit.
Retain receipts
In 2018, the ATO intends to focus on work related expenses, it is vital that all receipts be retained.
Salary sacrifice
As you enter a new financial year, it is important to explore all options and seek advice. If you are within 15 years of retirement age, it is well worth considering contributing the maximum tax-deductible contribution of $25,000 into super. This form of tax effective enforced savings will put you in a much better position when you retire.
Instant tax write-off
Although May’s budget extended, this for a further year (to 30.6.2019), a SME with a turnover of less than $10 million can take advantage of the $20,000 instant tax write-off on the purchase of a business asset prior to 30.6.2018. Well worth thinking about if you have had a good year.
Prepayments
SMEs can make prepayments of such things as interest and leases for up to 12 months prior to 30.6.2018.
Bring forward expenditure
In the event you are likely to incur expenditure in July and August on items such as office stationery and other consumables, consider bringing this expenditure forward. It may be something as simple as an insurance premium due on say 15.7.2018. Make this payment prior to 30.6.2018 and secure the tax deduction.
ATO DRIVEN TO SCRUTINISE CAR CLAIMS THIS TAX TIME
In the past 3 years motor vehicle expense claims have been under increased scrutiny and this is set to continue…
The Australian Taxation Office (ATO) has announced that it will be closely examining claims for work-related car expenses in 2018 as part of a broader focus on work related expenses.
There are now only two ways to calculate a deduction for car expenses – the cents per km method which is limited to claims for work-related travel up to 5,000 kms and using a log book to determine the work-related percentage of actual expenses incurred.
Each year around, 870,000 people claimed the maximum amount under the cents-per-kilometre while 3.75 million made a work-related car expense claim.
According to the ATO:
- It’s legitimate to claim for 5,000 kilometres if you did actually do them as part of earning your income. However, they are concerned that some taxpayers mistakenly believe that this is a “standard” deduction they are entitled to, without needing to provide any evidence of having travelled that distance, or even having undertaken any travel at all.
- It’s true that claims of up to 5,000 kilometres using the cents per km method don’t require a log book. However, you still need to have done the kilometres as part of your job and be able to show how you calculated your claim, for example by keeping a diary of places you have had to drive to for work, and how often. The cents per kilometre method is there to simplify record-keeping, not to provide a free ride.
- The ATO’s ability to identify claims that are unusual has improved due to enhancements in technology and data analytics. They compare taxpayers to others in similar occupations earning similar incomes. Their models are especially useful in identifying people claiming things like home to work travel or trips not required as part of your job.
- Unless you have a work-related need to travel while performing your job, you won’t be able to claim a deduction. For example, travelling from home to work is not deductible for most people. There are a few exceptions, like if people travel from site to site or are required to transport bulky tools or equipment and their employer does not provide them with secure storage at work. However, simply travelling from home to work is not enough to qualify, no matter how far you live from your workplace.
- The ATO is advising taxpayers that they may request proof that you were required to undertake the travel for work. A good way to check that your travel claim relates to your work is to ask yourself – did your employer require you to do that travel as part of your duties, or did your employer require you to transport bulky tools or equipment to and from work?
- The ATO is also warning taxpayers to not double-dip. You can’t claim expenses you didn’t pay for, including when your employer provided the vehicle or reimbursed your expenses, including under a salary sacrifice arrangement or novated lease.
There are three golden rules for taxpayers to remember to get it right.
One – you must have spent the money yourself and can’t have been reimbursed, two – the claim must be directly related to earning your income, and three – you need a record to prove it.
Case Studies (as advised by the ATO)
False logbook
A traffic supervisor claimed over $11,000 for work related car expenses and provided a logbook to substantiate his claim. However, upon investigation it turned out that the logbook wasn’t printed until the following year. The taxpayer admitted the logbook was fraudulent and it was ruled invalid.
Even though the logbook was invalid, the taxpayer was able to provide other evidence to show that he had travelled at least 5000 kilometres for work-related purposes. In this case, the ATO used the cents per kilometre method to calculate the taxpayer’s deduction. His claim was reduced from over $11,000 to under $4,000.
Claiming for home to work travel
A Laboratory Technician claimed $3,300 for work-related car expenses, using the cents per kilometre method for 5,000 kilometres. He advised that his employer did not require him to use his car for work; this claim was based on him needing to get to work.
The taxpayer was advised that home to work travel is a private expense and is not an allowable deduction. His claim was reduced to $0 and we applied a penalty for failure to take reasonable care.
Claiming for expenses paid for by employer
We recently investigated a taxpayer who claimed $3800 for transporting bulky tools to and from work. He advised that he was required to transport the tools as there was no secure area to store them at his place of employment.
However, when we spoke to his employer they advised that the taxpayer was provided with a company car at all times and was not required to use their own car to transport tools. Additionally, the employer provided all tools and did not require the employee to transport them.
We reduced the taxpayer’s claim to $0 and applied a penalty as the taxpayer did not actually incur any work-related car expenses.
Incorrect claiming of home to work travel (not-so-bulky tools)
A tiler lodged his tax return using a registered tax agent and claimed over $4,000 in deductions relating to his car (based on transporting bulky equipment), travel and tools. To verify the tiler’s car claims, the ATO contacted his employer who confirmed that he was not required to transport any equipment to work that would be considered bulky – just a few pencils and a utility knife. The employer also advised that secure lockers were provided at the work site to store tools.
When asked to provide records of the travel and tools expenses, the tiler produced receipts for car parts, and receipts for all-day parking at the same workplace (not for travel between different worksites or jobs). The tiler’s claims for purchasing tools, carrying bulky equipment and car parking were disallowed because they were private expenses, not directly related to earning his income.
Double-dipping – claiming for a car which is under a novated lease
An employee manager claimed $3,800 in work-related car expenses. When we asked the taxpayer to verify that they owned the car and it was registered in their name, we discovered the car was under a novated lease. Under a novated lease, the employer makes the lease payments and generally incurs all the running costs of the car. An employee who claims a deduction for these expenses is double-dipping.
All deductions were disallowed, and we applied a penalty for failing to take reasonable care.
Our comment:you must have a legitimate and plausible basis for making the cents per kilometre claim. One that will be endorsed by your employer and one that falls within the above rules. Putting the matter in perspective allowing for annual leave and public holidays a 5,000-business kilometre motor vehicle claim works out at 22 kms a day or 110 kilometres a week. Taxpayers making the maximum claim may well be called upon to demonstrate such usage.
We stress that taxpayers should not be deterred from making these claims…only that they have a reasonable basis for doing so.
TAXATION DETERMINATIONS (TD)
Recently the ATO published the following fringe benefits tax (FBT) determinations…
Benchmark interest rate
TD 2018/2 –FBT: Benchmark interest rate
The benchmark interest rate for the 2018/19 FBT year is 5.20% p.a. (5.25% in 2017/18).
The rate of 5.20% is used to calculate the taxable value of:
- A loan fringe benefit; and
- A car fringe benefit where an employer chooses to value the benefits using the operating cost method.
Reasonable amounts for LAFHA benefits
TD 2018/3 – FBT: Reasonable amounts for LAFHA benefits
This Determination sets out the amounts the ATO considers reasonable for food and drink expenses incurred by employees receiving a living-away-from-home allowance (LAFHA) fringe benefit for the FBT year commencing on 1 April 2018.
Refer to these tables when making claims and we can provide further information if necessary.
Reasonable Australian amount for food and drink – 2018/19
Table 1 sets out the weekly reasonable food and drink amounts for a LAFHA paid to employees living away from home within Australia for the FBT year commencing on 1 April 2018.
Table 1: amounts of reasonable food and drink – within Australia
Per week |
|
One adult |
$265 |
Two adults |
$398 |
Three adults |
$531 |
One adult and one child |
$332 |
Two adults and one child |
$465 |
Two adults and two children |
$532 |
Two adults and three children |
$599 |
Three adults and one child |
$598 |
Three adults and two children |
$665 |
Four adults |
$664 |
Note: ‘Adult’ for this purpose are persons who had attained the age of 12 years before beginning of the FBT year.
Refer to the Determination on the ATO website for other relevant tables e.g. type in:
TD 2018/3 – FBT to look up Reasonable amounts for LAFHA benefits.
Cents per kilometre basis
TD 2018/4 – FBT: Cents per kilometre basis
The rates to be applied where the cents per kilometre basis is sued for the 2018/19 FBT year in respect of the private use of a vehicle (other than a car) are:
Engine capacity |
Rate per kilometre |
0 – 2,500cc |
54 cents |
Over 2,500cc |
65 cents |
Motorcycles |
16 cents |
Record keeping exemption threshold
TD 2018/5 – FBT: Record keeping exemption threshold
The small business record keeping exemption threshold for the 2018/19 FBT year is $8,552 ($8,393 applied in 2017/18).
NEW SET OF INDUSTRY BENCHMARKS RELEASED BY ATO IN MAY
The Taxation statistics 2015–16 report provides an overview of the information the ATO received from:
The ATO has included new sets of industry benchmarks, combining data into one set of ratios for a range of taxpayers, including individuals, companies, partnerships and trusts. The ATO developed these ratios to address requests for one figure for all entities.
Of course, the ATO uses this data to identify taxpayers who are not disclosing income and/or making excessive claims.
These benchmarks may be useful to:
- set goals and performance expectations
- manage change when required
- become more competitive.
INTERESTING CHANGE TO EMPLOYEE DECLARATIONS
An employee declaration is written advice given to an employer by an employee containing information relating to the fringe benefits they have received.
Usually this is to certify that the payment relates to an expense that would have been otherwise deductible had the employee incurred the expense themselves. This serves to reduce the taxable value of the fringe benefit to nil.
You can also receive employee declarations electronically. However, the declaration must still be signed by the employee using an electronic signature.
This means that employees can provide employee declarations to the employer, in the approved format – electronically with their electronic signature if:
- the employer consented to the method of electronic signature
- the electronic declaration is readily accessible and understandable, and convertible into written English, in order to determine your FBT liability.
You must obtain all employee declarations no later than the day on which your FBT return is due to be lodged.
Recently declarations were updated to include the following statement:
‘I understand that any work expenses reimbursed by my employer are not deductible in my personal income tax return ‘.
The intent here is clear. This serves to pave the way for the ATO to impose significant penalties if the employee makes a claim for an expense which has been already been reimbursed or paid for by the employer. After signing the declaration, the taxpayer can hardly plead ignorance.
Please note: Our Newsletters are not the place for the giving or receiving of financial advice concerning investment decisions or tax or legal advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Any ideas and strategies should never be used without first assessing your own personal needs and financial situation, or without consulting or engaging with us as your professional advisors.