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February 2022
11home business and cgt

Claiming occupancy expenses if your home business and cgt.

The implications of your home business and cgt needs to be considered if your home is regarded as a place of business.

Typically many small businesses operate their business out of the home. Especially since the onset of covid.

Occupancy expenses you can claim

In this case, then you are entitled to claim home occupancy expenses if you are running a business.

If you use some or all of your business from your home, you may be able to claim tax deductions for home-based business expenses in the following categories:

  • occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
  • running expenses (such as electricity, phone, the decline in value of plant and equipment, furniture and furnishing repairs, cleaning)
  • the expenses of motor vehicle trip between your home and other locations, if the travel is for business purposes.

A home-based business is one where your home is also your principal place of business. That is, you run your business at or from home and have a room or space set aside exclusively for business activities.

Where you are renting a home, then there are no cgt implications

Where you are operating as a Trust or a Company, you cant directly claim the interest etc., on the house. However, you are entitled to charge your business rent.

Your claim is based on % of occupancy of your home. Make sure you do a mud map and work out the area allocated. Please don’t include your toilet or kitchen as the ATO considers this material and need it for private purposes.

However, your home will be subject to CGT on the proportion of use and time.

CGT implications upon sale of home if used for business

Selling your home from which you have run your business will make it subject to capital gains tax on the percentage set aside for business multiplied by the period. However, as a small business, you will be able to claim the small business capital gains concession. These concessions may considerably reduce or eliminate the gain.

Please discuss your options with us and keep adequate documentation if the ATO decides to review your claim.

11motel occupancy rates

What helps increase your motel occupancy rate and keeps your customers coming back to your accommodation business?

Motel Occupancy rates are a good indication of the profitability of your accommodation business. What brings back your customers? Why do some accommodation providers have high occupancy rates and some don’t?

In the seventies, it was “free colour tv ” now it is “free wifi” to add that little extra to attract the customer.

All small businesses need a point of difference to attract customers and retain their competitive edge. With the advent of online reviews and social media, it’s important to keep your accommodation business inviting at all times. A bad review impacts your online chances of securing a customer.

Your higher Motel Occupancy rates are driven by customer satisfaction

The occupancy rate should be monitored weekly. Its is an indication of how space is generating revenue

Traveller surveys show that customers want:

  • Cleanliness
  • Value for money
  • Happy welcome
  • Facilities that work
  • Quite and restful
  • Comfortable beds

It is not a lot to ask for but often one or two of these just doesn’t happen will make repeat business hard to sustain.

To see how Melbourne fairs when it comes to occupancy rates follow this link

Treat travellers how you would like to be treated

How often have you experienced a situation after a long drive and you are greeted with the owner is grumpy or unaccommodating of travellers needs? Rooms, where lights are broken or are so harsh with the lighting as they have inserted those energy-saving globes in that, save money but makes a dull night lighting.

It’s often the little things that can make or break an accommodation business. I was at a meeting in country SA and a fellow meeting attendee complained about her motel. Her story was one of amusement but handled badly by the owner.

She proceeded to tell us after a big day she retired to her room and bed only to find a pair of men’s pj’s under the pillow. It was late so she decided to sleep on top of the bed thinking the sheets had not been changed. She informed the owner the next day and he laughed saying it was probably the old guy who was going to stay before her but changed his mind moved on. The motel owner showed no empathy to the customer and hence she proceeded to warn others not to stay there.

Of course, not all motel owners are the same and many go out of their way to help you. In fact, if you are a regular many add that extra something to keep you coming back.

Look after your customers, keep your lodgings clean and tidy and customers will continue to make your hotel accommodation of choice. A low vacancy percentage is good. This means more revenue to your business and ultimately a higher value upon sale of the business leasehold or freehold, depending on how your business is structured.

Online Reviews help customers decide if your place is where to rest their head!

Always ask and seek online reviews. Reply glowingly when someone leaves a great review and reply empathetically when a review isn’t satisfied.

Always be aware of the reviewer that pays out after the event without having confronted you first hand. Having told someone that you have fixed the problem for next time is better than ignoring it completely.

Running a motel or air BnB takes effort and you need to be a people person which ensures success. Occupancy rate is something that takes time to maintain but ultimately is what drives profitability and value in your business

11job profit

Understanding job profit on my last job?

Making job profit on every job is important to make a profit and cover your business overheads and administration.

In the world of Building and Construction, there are many types of tradespersons who operate small businesses in Australia.

Some people are great trades person but not always running a business.

Amongst the construction industry, there are those who can run a successful business, those that can make a living but not much else and those that lose money and should not be self-employed!

Making a profit is an art and takes some understanding of your trade, what the market will bear and the cost of the ingredients it takes to make the end service product or project. Might at this stage also throw in mess ups where you have to fix a problem caused by not doing things right!

Yet many don’t take the time to get it right. They rely on their gut and this leads to losses and cash flow problems.

Good habits help makes job profit

Get into the habit of examining every job and take the time to understand costs vs profit. Understand what work you should continue you win and which jobs you should work away. Look at the labour on job and was it efficient or were there defects that required additional time and loss of resources that could have been spent elsewhere?

There are tradies out there that use the back of enveloping approach For them this works only because the price quoted is well above the odds. Often it also leads to low margins and has the reverse impact on profit.

There is no excuse these days with the sophistication of accounting software that you cannot monitor these jobs properly.

Cloud accounting software

 Accounting software such as XERO and MYOB can help you track jobs. A good accounting system can tell you the result or ongoing costs of a job.

There is also specific job costing software that is functional and affordable for smaller trades.

A final tip that many trade businesses neglect to do is while they measure their results on a job to job basis they forget to keep the score of the annual year to date result. This is where you may make a profit in a job but with insufficient margin, your administrative overhead can dilute your profit quickly with undesired effects of cashflow and taxes being unpaid. 

Don’t fall into the habit of not looking at the big picture not just on a job to job basis. Practical ways that some tradies ensure that they make a profit on a job is to :

  1. Add 10% to cover for incidentals
  2. Throw in a couple of thousand to make it worth while
  3. Use a professional quanity quote service
  4. Compare othe jobs you have done
  5. Ask other tradies as to what they quote

Plan your quotes, do the job and review the outcome. A good business will make nice profits and when you get the taste for profit it becomes something you strive for do better and this is a nice feeling to enjoy

11

Rental expenses claim. Keeping the ATO happy

Are you claiming rental expenses that might relate to the private use of your rental property?

The ATO has indicated that they intend to review taxpayers who have rental properties.

Who’s on the title is important!

When declaring the property. The ATO will be looking for the persons whose name is on the title to declare the net rental income or loss. This also goes for the eventual gain when sold.

Many think that if they share in the loan liability that this is sufficient. The truth is it is entirely based on ownership and title details.

Beware of the ATO

The ATO’s focus will be looking closely at those taxpayers that incur expenses beyond the norm for their rental property. The ATO will consider these expenses as both excessive and where the rental property is not available for rent but rather used as a holiday home.

The ATO like all of us is aware if you have a holiday home for rental in most cases there is a big chance you will use it for your personal use.

Travel to and from your holiday home or rental property

From 1st July 2017 travel expenses to your travel holiday home were legislated to be disallowed. (note this does not apply to commercial properties).

The ATO has previously been on the public record stating that they will take a keen interest in the interest expense claims. They will look to see if the property is available for continuous rent vs the percentage of the expense claim. Remember also you can only claim interest from the time it’s available to rent and not before.

Further, those taxpayers who have drawdown additional funds against their investment loan or refinanced will need to ensure the loan interest claim reflects the proportion % of the original loan.

Those using loan offset accounts should be okay

Adjust for private use on rental expenses

Make sure that if the property is used for private use then the property expenses are proportionately claimed accordingly.

The same goes for low rental, not arms-length, adjustments also apply.

The ATO has technological ways to check taxpayers’ stories, including real estate sites, social media and other sources such as water and electricity accounts. Take care when claiming and if in doubt please check with us.

Rental properties are still a great investment. We are now seeing many of the rental schedules being positive rather than negative gearing. This is entirely due to low-interest rates and high rentals.

We encourage you to contact us if you are purchasing a new property and let’s discuss who should hold the property and what claims can be made

11Payinga Franked Dividend

Can my Company pay a Franked Dividend?

Franked Dividends are recognising tax paid by the Company and transferring the tax as a credit when the Company pays Profit to shareholders.

Running your own Company will mean that as a shareholder you will want to access these profits. This is done as a Dividend. In simple terms your company is a money box and the only way to get it out as a shareholder is to pay profits as a Dividend. This will either be paid to you as a Franked or unfranked Dividend.

Profits to shareholders can be paid from the Company retained profits as a dividend.

A company pays distributions to its members. Shareholder members may be individuals or other entities such as your family trust. The amount of a dividend allocated will depend upon a number of shares you hold and the percentage of ownership.

What is a Franked Dividend and a Franking Credit?

Your Company, after paying a paid tax payment, either in the form of a company tax instalment or year-end company tax, will record these amounts as franking credits in the Company Franking Account.

Presently the Company Tax rate is set at 26%

When the Company issues a dividend, it will issue a distribution or dividend statement to each shareholder member.

The dividend statement is then given to each shareholder who receives a distribution outlining their entitlement.

Dividends paid by your company can be either Franked Dividend or an un-franked Dividend. The franking amount will depend upon the availability of tax paid by the company in the company’s franking account. When no company tax has been paid by the company a franked dividend may not be paid. Therefore, the Company may choose to issue a dividend, as un-franked.

The Dividend statement will show the amount of franking credit attached to the distribution. The statement will also show the extent to which it’s franked. Only resident taxpayers of Australia can claim a tax offset for a franking credit attached to a dividend.

Non-resident taxpayers, receiving a franked distribution are exempt from withholding tax in Australia. This is to the extent that it’s franked. Therefore, if it is 100% franked there is no final tax to pay or declare as a non-resident.

We recommend reviewing your Company’s Retained Profits regularly. Leaving large profits in retained earnings can lead to tax problems down the track when you decide you need to access these profits. Regular Dividends can eliminate the problem of tax implications being paid out in large Dividends.

Grossing up your Dividend in your tax return.

An individual shareholder in your Company will pay you a dividend. The franked dividend from the Company must include the amount together with any franking credit as declared taxable income. This is known as Grossing up your Dividend.

Receiving a franked divided also entitles you to a tax offset equal to the” franking credit amount. For tax purposes, this effectively means any tax up to 26% on the income will result in a neutral result.

A tax offset can result in a refund or excess tax payable. The tax may result in the need to pay additional tax liability on the distribution. When this happens, it is known as ‘top-up’ tax.

Taxpayers with lower taxable incomes can receive a refund of all or almost all the franking credits. This will be dependent on their income position.

As your accountant, we try and work with you to obtain the best result for your tax position. Managing how you declare your declared Frank Dividends using the right tax opportune time. The aim is to help smooth out your tax position and reduce your retained earnings in the Company.

Contact us for help 03 9597 9966

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