tax Archives - dmca advisory

Q & A – Working From Home Allowances At Tax Time

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 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.

Save The Date – dmca advisory Client Night

The 22nd of February marked our 1 year anniversary since relocating to our new office here in Dulwich. As a team at dmca, we enjoy coming to work everyday, so creating an optimal workplace and comfortable office environment is very important to us.

We have settled in very well and are enjoying our new bright and open location, so we would love to invite you to celebrate this milestone with us!

Mark the evening of the 19th of May 2022 in your calendar, to join us for drinks and nibbles at our new office.

Ground Floor, 182 Fullarton Road, Dulwich.
Please indicate your interest in attending by email to [email protected]

1. Government of South Australia grants – up to $11,000 available.

The South Australian Department of Treasury and Finance is now administrating another grant: the Business Hardship Grant covering December 2021 to February 2022. This is a new grant that will provide much needed funds for South Australian businesses that have experienced a 50 per cent or more decline in turnover over a set period compared to a comparable period due to the impact of COVID-19.

You must be able to compare your turnover to another comparative period to prove eligibility.

Other conditions include:

Have a valid and active Australian business number (ABN) and have been carrying on the operation of a business in South Australia.
Be registered for the GST.

The grant is in addition to the Tourism, Hospitality and Gym Grant and the previous Business Hardship Grant. However, all eligible businesses must submit a grant application. For more details on eligibility, please contact us on 08 8272 5620 or email your dmca advisory accountant.

2. Adelaide City Council grants

Adelaide City Council runs the City Business Saver Grant which supports small businesses in the city impacted by COVID-19.

Eligible businesses can apply for a cash reimbursement equivalent to 50 per cent of the third quarter 2021-22 financial year council rates. The grant is open only to micro and small businesses that operate within the City of Adelaide.

Criteria includes:

must employ between 1 – 20 employees
must occupy non-residential properties
must occupy a space that would be the equivalent to $0 to $15,000 in council rates (businesses do not need to be directly responsible for payment of rates in order to be eligible)
can provide proof of a 30% loss of revenue from 27 December 2021 to 9 January 2022, from 10 January 2022 to 30 January 2022 or from 1 February 2022 to 28 February 2022.

Businesses that have received either the COVID-19 Business Hardship Grant SA or COVID-19 Tourism, Hospitality and Gym Grant SA will be instantly approved on providing proof of their assessment outcome. Grant applications close on Thursday 31 March 2022.

Tax matters: ATO announces major tightening of family trust guidelines.

The ATO has reviewed their approach to the use of family trusts and has recently issued new draft guidelines. Specifically, the guidelines address concerns about the use of trust structures to distribute money to low-income members of the family for the main purpose of tax avoidance.

In previous years it has been possible and within the regulations to undertake tax planning by distributing income from a family trust to the lowest taxed beneficiaries, who are usually adult children.

The cash was able to remain in the trust with all transactions to children noted in the tax returns. However, this technically also allowed some parents or guardians to use the cash from a family trust themselves rather than actively transferring it to the nominees (the children). This is the issue the ATO wishes to address.

With new guidelines, the ATO has tightened the regulations surrounding trust arrangements in order to reduce opportunities for tax evasion. The ATO’s new compliance guidelines are very specific. The Commissioner has indicated the ATO will be monitoring activities and will apply penalties to parties who they believe have abused the tax laws. The ATO can also apply their decisions retrospectively if they choose to conduct an audit of trust activities.

While distributing proceeds from income to children in family trust is not a problem – the beneficiaries must genuinely benefit from the funds. Funds cannot act as a ‘loan’ from parents that is later ‘paid back’ to the parents.

Accountants have been well briefed on these matters and can advise clients about compliance. Should you have any questions about the use of a family trust, or the new guidelines, please contact dmca advisory on 08 8272 5620.

Luxury cars, threshold amount increases for 2020/21

Background to luxury car tax (LCT)

The luxury car tax (LCT for short) is a tax paid on cars above a certain value (GST-inclusive). The tax rate is calculated at 33%. Usually, it is paid by car dealers who sell or import luxury cars, with the LCT added to the purchase price. It is one of the reasons some European cars can seem more expensive here compared to other countries.

The luxury car tax was first introduced by the Government in 2000 alongside the Goods and Services Tax (GST).

Each year the thresholds at which the LCT is charged changes. The threshold is higher for vehicles considered fuel-efficient to encourage people to buy more environmentally-friendly cars. The tax also includes the value of any parts, accessories or attachments supplied.

LCT rates for 2020/21

Next financial year the luxury car tax threshold (that is, the price at which the LCT needs to be added to the cost of a car) increases slightly from $67,525 in 2019/20, to $68,740 for 2020/21. The tax applies to cars that are two years old or less, and is calculated for the year they were sold. (At the dealer, the LCT is added to the car’s retail value and on top of the GST.)

For more information on luxury car tax and thresholds for each year, go the ATO website here: https://www.ato.gov.au/Rates/Luxury-car-tax-rate-and-thresholds/

Land tax aggregation extension until 31 July 2020

The State Government has extended the deadline by which land owners are asked to advise Revenue SA of their individual land holdings and ownership interests, in preparation for the introduction of $70 million in land tax cuts next financial year.

South Australians now have until July 31 (instead of June) to confirm and update their land holdings, confirm and update company group information, and notify the government of land held on trust.

Changes to land tax laws passed by the Parliament in 2019 mean land holders now have new reporting obligations in relation to their land holdings.

Key changes to SA land tax:

The highest tax rate has been reduced from 3.7% to 2.4%.
For entities other than trusts, the tax-free threshold has increased to $450,000.
For trusts, the tax-free threshold has dropped to $25,000.
Amounts and rates in each value bracket have changed.

General Rates 2020/21

Total Taxable Site Value	Amount of Tax
Does not exceeds $450,000	Nil
Exceeds $450,000 but not $723,000	$0.50 for every $100 or part of $100 above $450,000
Exceeds $723,000 but not $1,052,000	$1365.00 plus $1.25 for every $100 or part of $100 above $723,000
Exceeds $1,052,000 but not $1,350,000	$5477.50 plus $2.00 for every $100 or part of $100 above $1,052,000
Exceeds $1,350,000	$11 437.50 plus $2.40 for every $100 or part of $100 above $1,350,000

Trust Rates 2020/21

Total Taxable Site Value	Amount of Tax
Does not exceeds $25,000	Nil
Exceeds $25,000 but not $450,000	$125 plus $0.50 for every $100 or part of $100 above $25,000
Exceeds $450,000 but not $723,000	$2250.00 plus $1.00 for every $100 or part of $100 above $450,000
Exceeds $723,000 but not $1,052,000	$4980.00 plus $1.75 for every $100 or part of $100 above $723,000
Exceeds $1,052,000 but not $1,350,000	$10 737.50 plus $2.40 for every $100 or part of $100 above $1,052,000
Exceeds $1,350,000	$17 889.50 plus $2.40 for every $100 or part of $100 above $1,350,000

Source Revenue SA adjusted thresholds 2020/21: https://revenuesa.sa.gov.au/taxes-and-duties/land-tax/rates-and-thresholds

Including JobKeeper payments on your tax return.

COVID-19 has changed a few things at tax time this year, so it is important to make sure you have everything covered when it comes to completing your return.

For sole traders who accessed the JobKeeper program, there are still tax responsibilities as JobKeeper payments are assessable income. To avoid problems with tax debts, the payments must be noted in this year’s tax return.

Please call our office in the next few weeks to speak to an adviser if you have any questions about tax issues or any other COVID-19 support enquiries.

New ATO calculation methods for working from home

Due to the large number of people forced to work from home during the COVID-19 pandemic, the ATO have announced an alternative to the simplified fixed-rate method for calculating working from home tax deductions.

There are now two fixed-rate methods you can choose to calculate your additional running expenses. You can use the COVID-19 higher allowance at 80 cents per hour for a set time period, or continue using the existing method of claiming 52 cents per hour, plus other expenses like mobile phone and data usage.

The choice will depend on the nature of your work expenses. Here’s a rundown on the differences.

New COVID-19 shortcut method

Anyone who worked from home as part of their normal employment duties between 1 March 2020 and 30 June 2020 can now choose to claim a deduction rate of 80 cents per hour to cover likely running expenses (instead of the usual 52 cents per hour). This is intended to make the process easier, without hours of calculations.

This method includes a flat rate to cover electricity, heating, cleaning expenses, stationery, printing costs, and all phone and internet costs.

However, it is important to note that if you choose this method, there are no additional home office expenses allowed. For some people who regularly work from home and use their phone and internet at an increased rate, this may not be the best method to choose even though it offers a higher per hour rate. In fact, the regular 52 cent rate per hour may be a cost saving, as it will still allow you to add extra expenses like any significant phone and data usage incurred through in the course of work.

Case study

Carol works a 37.5 hour week and has very high use of her phone and an extensive internet plan during her working hours. During COVID-19, and for much of the year, she works from her home office. If she chooses to claim the new flat rate of 80 cents for the set period, she would be able to claim a total of $126 for the quarter. However, if Carol kept claiming the usual 52c per hour for working from home and then included her internet bill of $80 per month (at her 80 per cent business use rate), she would be better off because she could claim $192 – a $66 increase.

Rules to claim working from home COVID-19 expenses

The ATO still needs you to keep records to prove your working hours at home, even if this period was only during COVID-19. These can include timesheets or a diary to demonstrate your working activities.
The COVID-19 flat rate does not allow you to claim mortgage interest, rent or other expenses associated with working from home.
You cannot claim additional expenses like tea/coffee, newspapers, and car use.

B Ordinary fixed-rate method

With the existing fixed-rate method, the claim rate of 52 cents per hour will cover heating, cooling, lighting, cleaning, and depreciation of any office furniture,

However, you can also make a further claim for the costs of phone and internet expenses, computer consumables, stationery, car use, and other expenses if they were incurred as part of your work.

Rules to claim fixed rate method

You must keep records of the actual hours spent working at home for the year. This could include a diary that tracks your work hours over a four-week period.
The expenses must be those that you have incurred – you cannot have been reimbursed by an employer.
You must keep records of all deductible expenses including mobile phone and internet accounts, office stationery receipts and receipts for office equipment.

For more information on claiming expenses relating to working from home go to the ATO site here: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/

Christmas can be a confusing time when it comes to tax.

So, you’re taking your best clients out to lunch and buying presents for the others, as well as for your staff? Not to mention a big office Christmas party at the new restaurant around the corner. It’s a tax deduction, right? Maybe not. While the festive season can be a time to really kick up the heels and celebrate – you may have a hangover when you realise that entertainment spend may not have been deductible or triggered a sizable Fringe Benefits Tax (FBT) implication.

FBT laws and the issues around entertainment-related expenses can be complicated, so it’s important to understand what’s OK and what isn’t first. To make things more complicated, the laws may also change according to how often you hold events, where you are holding an event, how much you intend to spend per person, and who is attending such as employees or clients.

Here’s some important points to remember.

While you can buy a client a bottle of wine as a goodwill present at the end of the year while still maintaining a tax deduction, a Christmas lunch out with wine at a restaurant may be a problem as that could be seen as offering entertainment and therefore not tax-deductible. However, offering a weekend away or tickets to the Rolling Stones would be considered entertainment and therefore not deductible.
Often employers intend to give staff gifts that may be viewed as a minor benefit like Christmas hampers, gift vouchers, or chocolates. When considering what gifts to provide keep in mind each benefit provided to your employees must be under the value of $300 to avoid possible FBT implications. However, it must be noted the nature of the benefit provided must be considered as all entertainment-related expenses are not deductible to the employer regardless of the exceeding this threshold or not.

The cost of providing a Christmas party is income tax deductible to the extent that it is subject to FBT. Any costs that are exempt from FBT (like minor benefits and taxi vouchers to take employees home) are not tax deductible as they relate to providing entertainment.
If food and drinks are provided to current employees on the business premises with a moderate cost during a usual business day it is more obvious that it is a genuine work event and there’s unlikely to be any FBT for the employer however considerations must be made in order to determine if the expense is still tax deductible.
Most parties, however, occur off-site which can make the claim harder to prove. But as long as the costs per employee are limited to less than $300 for food and drinks and it is a genuine end of year event for employees, this scenario is unlikely to attract FBT for the company as long as it is a one-off event.
Christmas parties that do not trigger FBT for employee related expenses are not generally tax deductible. The tax consequences of having clients accompanying you at these events could lead to other tax implications.

For more information go the ATO page on entertainment: