Tax Archives - dmca advisory

Good news: Stage three tax savings are coming in 2024

We’ve heard a lot about the controversial stage three tax rates changes. 2019 seems such a long time ago and yet that is when these tax changes were first put on the table. Now the final stage is set for July 1, 2024 — which is good news for middle to higher income earners.

From July 2024, the $120,000 to $180,000 personal income tax bracket will be scrapped. The top tax bracket will increase to $200,000 and the changes will see the marginal rate of tax for everyone earning between $45,000 and $200,000 reduce to 30% (from the previous 37%). Every dollar earned over $200,000 will be taxed at 45 per cent. This means around 95 per cent of taxpayers will pay a marginal tax rate of 30 per cent or less.

The stage three tax cuts are largely aimed at higher income earners. Earlier stages of tax cuts targeting lower incomes have already been established, so those earning up to $45,000 will see no changes in the 2024/25 financial year.

Tax savings will, of course, depend on how much you earn and the portion of tax you pay on that. For example, a person earning $60,000 will get a tax cut of $375, a person on $100,000 will gain $1,375, a person earning $150,000 will see a $3,975 saving, while an income of around $200,000 and above could save around $9,075.

Marginal tax rates with the stage three changes

Tax brackets under stage three:

$18,200 – no tax
$18,201 to $45,000 – pay a 19% tax rate
$45,001 to $200,000 – pay a 30% tax rate
$200,001 plus – pay a 45% tax rate

A marginal tax rate is how much tax you pay on income in that bracket. For example, if you earn $97,000, under state three you would pay no tax on the first $18,200 you earned, 19% for every dollar between $18,2001 and $45,000, and 30% on every dollar between $45,001 and $97,000.

Source. Stage Three Tax Cuts, The Guardian, 9 Nov, 2022.

If you would like to discuss your tax situation ahead of the stage three changes to take place in the 2023/2024 financial year, please make an appointment with your dmca adviser early in the New Year.

dmca advisory accountant Saikiran Ramini answers a tricky tax question…I have heard the tax office has recently reviewed how you calculate your ‘fixed rate’ work from home allowances from March 1, 2023 – what does this mean?

With most of the restrictions of COVID-19 now behind us, the Australian Tax Office has reviewed how ‘fixed rate’ work from home (WFH) allowances will be calculated and the 80-cent, short-cut method has now ceased. The fixed-rate method has now received an increase from 1st July 2022 to 67 cents per hour. Included in this rate is electricity and gas bills, phone usage, internet and mobile data and office consumables. You also no longer need a dedicated home office or work area to claim fixed rate WFH allowances.

Importantly, the alternative ‘actual costs’ WFH calculation method (which provides for depreciation of assets and deductions according to floor space) isn’t changing. You can still choose which method you want to use (fixed or actual costs) when preparing your tax return according to your circumstances.

Fixed rate method needs record keeping for 2022/23

Many people may be unaware that this change is actually coming into play for their next tax return (2022/23). From 1st March 2023, you need to record actual hours. For want of a better description, a logbook will be required to record the actual hours worked from home for the year ending 30 June 2023 and thereafter.

Whether you place a diary near your desk at home, use a spreadsheet or perhaps an app, the actual hours recorded will be used to substantiate your work-from-home deductions.

If you have not kept records in detail, once you get to June 30 and present deductions you might not be eligible for the claim.

What is good record keeping?

A 4-week diary for the year will no longer be enough to claim the fixed rate method after 1 March, so if you haven’t done this already, it may be too late (the ATO will only allow this option up to 28th Feb for the 2022/23 year).

From March onwards with the new fixed rate rules it will be important to set up a timesheet system, or to have evidence each week of how many days and hours you were in your home working as part of your ongoing employment. You must also keep all your stationery, electricity and phone bills and any other relevant evidence to prove your expenses.

Talk to your accountant

If you are not sure which method to calculate work from home expenses will be best for you, contact dmca to discuss your circumstances. For example, if you work from home a lot you could choose the ‘actual cost’ method where you only need a 4-week diary for the year, however there may be capital gains tax implications (if you work from your own home and not a rental) when you sell the property.

Why Business Owners Need An Exit Plan – getting ready for a sale.

The old adage ‘failure to plan is like planning to fail’ is particularly relevant when it comes to selling a business.

Like any tech entrepreneur, a business owner needs to have an exit strategy in mind from the very beginning. While for some an exit plan may be because they are looking to retire or to move on, others could face sudden ill health, divorce, or financial problems causing them to face tough decisions much earlier. If you have already discussed exit topics (and have structured the business appropriately to allow for those eventualities) it will be much easier to act if and when the time comes.

Prepare early

The most important point is making sure you have the best business structure in place for a sale, and the second is ensuring you run the business well.

It is better to bring in an outside adviser early (like an accountant) to give an honest overview of current operations and what can be improved, including record keeping. Do this well in advance.

To make sure a business is in a sale-worthy state, it is important to have established policies and systems in place that work efficiently — including fully transparent financial records detailing things like expenditure, cash flow and profits. You will also need to document any debts, liabilities and/or disputes. New owners will not want to inherit problems they didn’t know about when buying a business. It could even land you in hot water if you don’t attend to it before you sell.

Valuing a business

When it comes to valuing your business, it is best to engage a qualified financial adviser or an accountant to assist you. If all the paperwork and evidence of cash flow is in place, this will be much easier. Usually, the sale price is based on future earnings, so you need to demonstrate that you have a well-organised enterprise. Sitting down with someone will help you to sort out your best assets, how you will position the company, what kind of price you want, and how any sale or buy out might be executed.

Finding a buyer

Many people forget about employees when they are thinking of selling a business. With employee share schemes it may be possible to put a gradual buy-out in place earlier with those who are interested. It is certainly worth discussing if you are in a business where this may be a possibility. Wider family networks or associates may also help you to discover potential buyers. The other option is advertising and/or putting it on the open market with a broker, which could be more costly.

The bottom line

The most important point for any business owner is to remember you are building up an asset. That means it is in your interests to make sure it is performing at optimum capacity and generating a solid return. This is what will attract the best buyer and the best price. Our advisers can also assist you to work on your operational plan to get the business into the best shape before you think of selling.

Checklist of documents you need to sell a business.

Financial records – profit and loss statements, bank loans, forecast financials etc
Commercial information – ABN registration papers and insurance details
Operation documents – business history, supplier information, stock inventory lists, strategy, procedure and process documents, rosters, and marketing materials
Legal details – staff and customer contracts, any franchise agreements, leases, or health and safety guidelines
Forecasting documents –revenue growth and anything that shows your business would be a good investment for future buyers

For more information on business sales, business advisory and how to prepare for an exit, contact Ricardo Neves at dmca advisory.

dmca accountant and business adviser Alison Stanbridge answers some common questions about maximising deductions with superannuation contributions by June 30. For any questions, contact [email protected] .

Can I make more tax effective superannuation contributions this year?

Whilst superannuation contributions boost your balance to retirement, there is a limit as to how much you can contribute to superannuation concessionally. Concessional contributions are those made from before-tax income and include both employer contributions and those personal contributions you are allowed an income tax deduction. Your fund pays 15% tax on receipt of these contributions. From 1 July 2021, the concessional contribution cap increased to $27,500 per annum so you may find you have some room to contribute more.
However, if you had a total superannuation balance (see below) of less than $500,000 at 30 June 2021, the carry forward rules allow you to make extra concessional contributions above the general concessional contributions cap by accessing unused concessional cap amounts from previous years. An unused cap amount occurs when the concessional contributions you made in a financial year were less than your general concessional contributions cap. You can use unused caps from up to 5 previous financial years, however the unused cap amounts will only start accruing from 1 July 2018.

Am I going to exceed the concessional contributions cap?

Review your contributions to date and estimate to 30 June. If you think you may be close to exceeding your concessional contribution cap by 30 June this year, consider if there are any contribution payments you can defer to the next financial year that you make personally. And ask your employer when they will make their electronic contributions (such as salary sacrifice and super guarantee amounts) to your super fund. Employers are only required to make their super guarantee contributions for the last quarter of 2021–22 by 28 July 2022. If your employer pays more frequently you may be able to request a delay in payment until the normal 28 July date but remember this will affect your contributions cap for next financial year. Information on your contributions can be accessed directly from your superannuation funds and often online. If you have the Australian Taxation Office linked to your MyGov account, you can also view some of your superannuation information there.

Do I have to tell my fund of my intention to claim a tax deduction for personal superannuation contributions paid?

If you wish to claim a tax deduction for personal superannuation contributions, you must give a notice of intent to claim a deduction to your super fund on or before whichever of the following days occurs earliest, either:

–the day you lodge your tax return for the year in which the contributions were made

–the last day of the income year after the income year in which you made the contributions.

Where you contribute only once a year, it is good practice to lodge your notice of intent straight after making your personal superannuation contribution.

Can I access a tax benefit by making a spouse contribution?

You can obtain a tax offset of up to $540 by contributing to your spouse’s superannuation fund. The sum of your spouse’s assessable income (excluding any assessable First Home Super Saver released amount or COVID-19 early release of superannuation payment), total reportable fringe benefits amounts, and reportable employer superannuation contributions must be less than $40,000.

Other spouse contribution eligibility criteria:

the contributions you made on behalf of your spouse were not deductible to you
the person was your spouse when you made the contribution
both you and your spouse were Australian residents when you made the contributions
you and your spouse were not living separately and apart on a permanent basis when making the contributions, and
your spouse did not have:

— non-concessional contributions totalling more than their non-concessional contributions cap for 2021–22, or

— at 30 June 2021, a total superannuation balance of $1.7 million or more.

When should money be sent to a super fund to ensure it gets there by June 30?

Each superannuation fund has their own contribution cut-off date and time. The funds indicate that by paying your contribution by the cut-off date and time they will be able to process your contribution by 30 June. But these dates and times can also vary depending on the deposit method chosen. To allow for delays in payment processing, I would aim to pay your contributions by 24 June 2022.

What happens if people don’t get the timing correct?

If your contribution isn’t processed by your fund by 30 June, the contribution may be allocated to your next year contribution cap. If you go over the concessional cap you can elect to withdraw the excess and it will be included in your assessable income and taxed at your marginal tax rate which may result in you paying more tax. You do receive a 15% tax offset on the excess to account for the tax already paid in your fund. You can also elect to withdraw up to 85% of the excess from your super fund to pay your income tax liability.
If you decide not to release your excess concessional contributions, any excess that also results in you breaching your non-concessional cap could have an effective tax rate up to 94%. The non-concessional cap is for after-tax contributions, such as those from your net pay where you don’t claim a tax deduction.

Tax Returns: Warning To Avoid Double Dipping This Year

The tax office is warning people to be careful of how they calculate their working from home expenses on their returns. In the last financial year Australians claimed almost $20 billion in deductions for working at home.

For those who have taken time out of the office to work from their lounge rooms, the ATO recommends that the home shortcut method may be the simplest way to claim genuine expenses like use of power, phone and internet etc. However, some people in the past have tried to double dip by also claiming additional amounts for separate usage of working items like mobile phones or decline of computer equipment. The firm message is – it is either one or the other – you cannot claim the all-inclusive shortcut working from home expenses on your return and then also itemise your home office use of printers and office equipment.

Another advantage of the short cut method is to claim working from home expenses is only a diary or timesheets are required, whereas other methods of deductions will require receipts and detailed records.

Likewise, car expenses will also be looked at closely this year. You must choose one method to claim any eligible work deductions. That means either the cents-per-kilometre method or logbook method where you claim the work related portion of expenses separately like petrol, car insurance, and registration. You cannot claim both and double dip. And it goes without saying if your employer has already reimbursed you for an expense, you cannot also claim it on your tax return.

While tax office understands people can make innocent mistakes in their returns, the ATO now uses very sophisticated data analytics to review returns. You risk being penalised for deliberately providing false information.

Official interest rates and inflation are on the move, but don’t panic: stick to good business practices

With rising inflation and higher interest rates, it is a challenging time for many businesses. The Governor of the Reserve Bank said recently he expected inflation could hit 7 per cent by Christmas and predicted it would not fall until the first quarter of next year.

The Australian Bureau of Statistics (ABS) revealed that 57 per cent of all entities across the country have seen an increase in costs over the past three months. In response, the Fair Work Commission has just raised the minimum wage by 5.2%. The Reserve Bank also indicated interest rates will most likely increase further. Business may now need to revisit their estimates for the next financial year to factor in the rising costs with everything from petrol to lettuces showing steep price hikes.

Tips for business:

Factor in wage increases

With rising inflation, expect pressure for wage increases to grow across all industries. This should be factored into any forward planning, even if it means cutting into profit margins. With a tight labour market, pressure for skilled employees is tough and finding the right people may depend on providing competitive rates of pay.

Consider your debts and payment plans

Now is a good time for small-to-medium-sized businesses to review company debts and make sure that any business plans are updated in line with higher inflation and higher repayments on various loans and overheads. Seek advice from financial advisers at dmca and your lenders to find out where you can adjust payments – just don’t wait to take action. Also remember to factor in any outstanding debts you may have with the Australian Taxation Office. It is possible to negotiate payment plans that will make cash flow easier.

Watch your cashflow and consider financial software

When times are tough, cashflow is more important than ever. To ensure your business remains profitable, you may have to need to review your pricing strategies and/or offerings and honestly evaluate if you can afford to absorb cost increases, or if you will need to pass those on to customers.
Consider investing in industry specific financial software to make invoicing and to track payments and forecast more efficient (ask your adviser at dmca about options).
And most importantly: remember to invoice immediately when work is finished and make the terms of payment known to clients. Don’t be afraid to call when bills become overdue.

Get your books in order

With tax time approaching, make sure you have everything accounted for. In difficult times the last thing a business owner needs is an audit from the ATO. Make sure you keep copies of expenses recorded and ensure your GST payments are up to date. If you are struggling with the mountain of red tape and paperwork, talk to your dmca adviser who can assist.

Remember customer service is king

There is one thing that can help a business stand out from the crowd. Great service. July 2022 could be the time to revitalise you’re offering and train up staff to provide a great customer experience. Expect more customer churn in the difficult times so ensure your business plan also includes strategies to retain customers, not only with competitive pricing options, but also with articulation of value. The pandemic has meant more and more people are working online from home so convenience, ease of use, and a superior online experience are essential – however, being able to contact a real person easily will also be essential.

Tax Office Says Tim Tams And Other Home Comforts A No-No On Your Tax Return

Tax time is often a period when people feel they can get creative with what they might claim as a work deduction.

With more people than ever working from home in 2021/22, it may be tempting to add the coffee machine, your online yoga classes, or the biscuits for morning tea on your tax return, but the message from the Tax Commissioner is don’t try it this year.

Although you might have Tim Tams provided when you are in the company staff room at work, that doesn’t mean it is a tax deduction when you are working from home. Likewise – you work from home in your own business and have clients coming to your home office for 100 per cent use of a dedicated cappuccino machine – coffee or the expresso machine is most probably not a kosher deduction. Nor are the track suit pants you have decided to wear as office clothes.

The tax office is well aware that working from home has been a common experience for many people over the past few years, but unless your deductions relate to genuine work use you may risk an audit by the ATO.

Why Financing Or Buying A Work Car Could Be To Your Advantage This EOFY

Buying a new car is a considerable expense for anyone, but if you run a business and use a vehicle for work purposes you may be able to claim tax deductions either by buying it outright, or by leasing.

If you buy a car for work purposes, you might consider using the Federal Government’s instant asset write off which has been extended to cover 2021/22. The terms of this initiative allow business owners with a turnover of less than $5 billion to purchase work assets (with car purchases capped at $60,733). Trade or commercial vehicles (i.e. vans) for business use have no cost limits.

If you choose to finance the car with a loan, you can also claim the interest payments and the GST (if you are registered), otherwise this forms part of the cost of the vehicle. The asset is depreciated and written off against your profits. Financing a car also frees up cash flow by allowing you to pay it off over several years.

However, the instant asset write-off for vehicles has some conditions:

Both the asset and your business must be eligible for the temporary full expensing method. If a vehicle is used only for work purposes, the deduction could be as much as 100 per cent. If the vehicle is used for business and private purposes, this should be documented, and the deduction apportioned accordingly.
The asset should be purchased, first used, or installed for use by 30 June 2022.
For SMEs, the asset may also be new or second hand. And you can buy any number of assets, as long as they are used for work purposes, for example cars, new technology, office furniture.
Cars are included in the instant asset write off scheme, but the car depreciation threshold is $60,733, being the maximum deduction allowed for the 2021/22 year. All expenses including interest payments on a car loan can be included in your tax deductions.
Documents must be kept to record business and personal use (i.e. a log book with a car), and all purchase details and receipts must be kept.

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