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Month

March 2022
newsletter
31/03/2022

Weekly Newsletter March 31st

The Federal Budget 2022


Here is our quick summary of the Federal Budget handed down on Tuesday. The Budget focused on keeping business and the economy going during uncertain times. It would be also be drafted with a focus on the following Federal Elellection due soon. Media reports indicate that if there is a change of Government, the ALP will publish a newly revised budget in July or August this year, which may not result in all initiatives etc., being fulfilled or modified.


Here are the critical points that we believe will impact our clients:
• 120 % tax deductions for small and medium business spending on Training and new technology
• No further extending the temporary full expensing of equipment investments
• $1.3 billion to businesses to fund apprenticeships
• ATO will be allocated more money to chase tax cheats
• PAYG system to better match a business trading result
• TPAR reporting changes to make it easier for businesses to report
• Super pension drawdown rates halved till the start of July 2023
• As previously announced before the Budget, the work-related COVID 19 test expenses incurred by individuals will be tax-deductible.


Small Business Full Expensing is finishing up!


The full expensing instant tax deduction has not been extended, meaning businesses will have to install or use the new equipment by June 30, 2023, to claim full expensing provisions.

In replacing full expensing, we have a New Technology & Training Tax Break


The new temporary tax break is for businesses that invest in either new technology or employee training and skills development.

Employee Training
As of Tuesday night, for every hundred dollars a small business spends on training their employees, they will get a $120 tax deduction,

Technology incentive

As of Tuesday night, every hundred dollars small businesses spend on digital technologies — such as cloud computing, e-invoicing, cyber security and web design — results in 120% tax deduction.
Limited to Investments of up to $100,000 per year will be supported by this new measure; however, if you are spending more, please see us as the existing immediate write off provisions still apply till 2023

How it works in real life, reducing the cost of Training or technology!


For example, Smith Co Pty Ltd has engaged an RTA business in Australia to provide Training staff to its employees online. The total cost of Training was $10,000. Smith & Co Pty Ltd will be able to claim 120% (i.e. $12,000, as a tax deduction concerning these expenses)

The True Cost of the Training from a cash point of view


Cost of training $10,000, payable now when you buy it
Claim tax deduction of $12,000 (still to be clarified – 2023 year )?
Real cash tax-saving @ company tax rate $ 3120
Net cost of training $6,880

A reminder that Loss carryback rules still apply for the next two years

Loss carryback provides a refundable tax offset that eligible corporate entities can claim:
• after the end of their 2020–21, 2021–22 and 2022–23 income years
• in their 2020–21, 2021–22 and 2022–23 company tax returns.
Eligible Companies can obtain the offset by choosing to carry back losses to earlier years in which there were income tax liabilities. The offset effectively represents the tax the eligible entity would save if it could deduct the loss in the earlier year using the loss year tax rate. As it is a refundable tax offset, it may result in a cash refund, a reduced tax liability or a reduction of a debt you owe us.
Loss carry back tax offset – Australian Taxation Office. https://www.ato.gov.au/Business/Loss-carry-back-tax-offset/?=redirected_losscarryback

Fuel costs temporary relief

Petrol and diesel excise will be reduced by half for six months, saving 22 cents for next six months. Hoping this is passed on to the small business at the petrol bowser

Tax Bonus when you lodge your 2022 return

Low Middle-income tax offset (LMITO) — in 2022 can put up to another $1,500 against your tax refund once you’ve done a tax return in 2022

Draw down rates for Self Funded Retiree Pensions – 50% reduction till June 2023

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31/03/2022

Estate planning and documenting your future.

Estate planning for the living!

Many of us go through life not thinking about the end.

Many often think do I need a will? Many don’t bother! We start life naked with nothing and we end up leaving an imprint on this earth that others must follow.

Telling others how you want what you have accumulated in life is important

Wills establish wishes after death and are essential for estate planning

The chances are that you may have wishes about who gets the large loot of assets and possessions. These assets you have accumulated in your lifetime. Or you may have a young family and provision needs to be made to provide for their welfare and education.

No matter what your situation is you need a plan! A plan to look after your loved ones.

Start planning now for your estate wishes.

Leaving this earth without instructions to your executor can mean that you will leave headaches for others. Do I need a will? YES  Take time as to what instructions you would leave for things such as :

  • Your business – what is your desire and are others capable of taking it over? 
  • Your car 
  • Your children and wife from the first or second marriage
  • If you die with young kids who will look after them?
  • How will you deal with your superannuation?
  • Who gets what?
  • Is their tax and capital gains tax to be addressed?
  • Any favourite charities that are important to you
  • Have you documented your life achievements?
  • Passwords for eBay, Facebook and Instagram?

Leaving a will allows those you love can be financially rewarded or cared for. A Will that has been created well will address issues of taxation and division of property.

No will – dont leave a problem to someone else

Not leaving a Will can result in an executor being appointed that must follow the standard formula for those without a will.  When a person dies without leaving a valid will, their property, etc. must be distributed according to certain rules called the rules of intestacy. A person who dies without leaving a will is classified as an intestate person. You may need to apply for probate and if this is the case seek legal advice.

Many of our clients have businesses. If not dealt with a mess can be left and on some occasions, any value in the business is wittered away due to inaction after death.

Many fights start due to greed and expectations. Many of us will accumulate wealth during our lifetime but it is your wish as to how it will be distributed. We encourage clients to tell others so it should not be something of a complete surprise. Eliminate those self-focused beneficiaries who think that they have a sense of entitlement by controlling the conversation about why you are living.

It can pay to start dealing out assets early before death and enjoy the process. Some assets such as the property will have tax and stamp duty implications for you if sold early or transferred not under will. You can and you may enjoy giving cash away (as long as you are on no Government Benefits) and slowly depleting the estate. 

If you have lent others money, make sure it’s documented so your estate can recover if necessary or even out the distribution amongst family if needed. Finally, there are those who hide money in the walls and the garden. Make sure you let someone know what to look for. 

Make a confidential appointment if you wish to explore some of our discussion points. Best wishes Geoff

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Initial Repair
25/03/2022

Initial repair for my rental property- can i claim it?

An Initial repair occurs when you acquire a new rental property with existing known repairs. The old house might need fixing before it can be rented. Initial repairs may include such things as plumbing, painting, new carpet or appliance repairs, to name a few.

Initial Repair must be capitalised!

Though Initial repair cannot be claimed outright in the first tax year, there is some tax relief. These repairs should be treated as a capital expense. Treating them as a capital expense will add them to the property’s cost base.

We are often asked what the tax treatment of an initial property repair is. Can you claim a tax deduction for repairs to a newly acquired rental property investment? Will the ATO allow it!

Why won’t the ATO treat all repair claims as an expense?

What is the Government thinking about initial repairs legislation? Why did they decide you can’t claim the repair outright when you buy the property?

In looking at the intent of the legislation, the lawmakers said if you haven’t yet rented the property out there is no right to claim an expense on revenue account. Furthermore, the ability for some taxpayers to buy a rundown property and then claim all the expenses in fixing that property up would mean the ATO would be inundated with excessive claims. Hence, the initial repairs must be capitalized.

A repair claim should be evaluated on merits. You may find it may not be classified as an” initial repair” simply because it’s the first repair made after you acquired a rental property. The ATO has designed a tool kit, which can be accessed here. Also, you can refer to taxation ruling TR 93/23 where you can read more. The ruling outlines a repair is not an ‘initial repair’ simply because it is the first repair made after the property is acquired. The ATO has numerous examples within these two resources.

Examples of an initial repair

Here are some initial repair examples:

Fixing a Damaged Roof: If the rental property’s roof was damaged or leaking at the time of purchase.

Replacing Broken Windows: If any windows were broken or dysfunctional when the property was bought, their replacement is categorized as an initial repair.

Repairing Electrical Systems: If the electrical systems, like wiring or electrical appliances, were not functioning correctly at the time of purchase. Therefore, any repairs to make them operational would be considered initial.

Plumbing Repairs: Fixing any pre-existing issues with the plumbing system, such as leaking pipes or faulty plumbing fixtures, is classified as an initial repair.

Restoring Damaged Flooring: This includes repairing or replacing floorboards, tiles, or carpets that were in poor condition when the property was acquired.

Repairs that are regarded as initial cannot be claimed outright and must be capitalized. The capitalized repairs are added to the cost base of the Asset. This will assist when calculating the capital gain upon sale as a cost. This means you can reduce your capital gain at the sale of the property but not claim it against your tax when you acquire the property in the first year.

Here is an example of an ongoing repair that is tax-deductible!

If the dishwasher worked perfectly when you started renting the property but needed repairing a couple of months thereafter. This would be considered an ongoing repair and tax-deductible.

Repair vs Improvement need help?

Gartly Advisory looks after many happy clients who own rental properties. Plan carefully and do your homework. The ATO is looking closely at rental property claims as more Australians love to acquire property for investment purposes.

Unsure what can be claimed upon purchasing your new rental property, reach out to us, and we can assist!

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newsletter
24/03/2022

Weekly newsletter

Insolvency – Worrells Liquidation observations

Despite the last 2 years being a rocky road for small businesses in Australia, liquidations and actions by the ATO have been very low. Yesterday I attended the Worrells Solvency seminar on the current state of play. Here is a quick summary:

  • The ATO has been quiet over the last 2 years about debt recovery, but soon the sleeping giant will awake!
  • Jobkeeper forced many taxpayers  to get their lodgments up to date, so the ATO is aware of who owes what,
  • ATO debt is sitting at $61 billion outstanding. That’s a lot to collect expected that $20 Billion might never get collected
  • ATO has been kind regarding payment plans, but now it is likely that things will tighten up.
  • Last 2 years, there has been a drop off insolvency appointments, but soon the ATO will start,
  • The prediction is that corporate insolvency appointments will rise with higher interest rates, lack of supply and labour, and more excellent ATO activity.
  • Directors changes in terms of appointment and debt

Small Business needs to start managing their debt. To avoid becoming personally liable for ATO Debt in an insolvency situation, make sure you ensure that all returns are lodged on time or within three months of the date of lodgment.

If you need advice on how to manage your debt, please call us, and we can assist you in exploring your options

Like Real Estate, then listen to our client Sue

and her podcast Real Estate Right

The podcast is designed to educate, inform and better prepare the public with expert information about how to maximise their real estate transactions and dealings

PODCAST! – go to her website or search on Spotify etc

https://www.podbean.com/ew/pb-uupcs-11d0846

TOP EXPERTS TALK ABOUT HOW TO BUY, SELL, RENT AND INVEST… RIGHT!

New date for online “Freedom Discovery Workshop.”

Join us as we explore what business freedom means to you and your business

New date Monday, April 4th 7:30 pm online – rsvp admin@gartly advisory.com.au

https://www.eventbrite.com.au/e/276167834427

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22/03/2022

Car logbook and my car expenses deduction

You must only claim motor vehicle expenses relating to work travel and we recommend a logbook will substantiate your claim. To substantiate car expenses the ATO requires that you keep a car logbook or use the 20% statutory method. The car logbook is used to justify your motor vehicle claim.

Types of expenses Common types of motor vehicle expenses you can claim include:

  • fuel
  • repairs and servicing
  • interest on HP,
  • lease payments,
  • insurances or  VIC roads registration
  • and depreciation of your vehicle

Per ATO here is what you must do for the operating or logbook method

Logbook method You can claim the business-use percentage of each car expense, based on logbook records. You must record:

  • When the logbook period begins and ends
  • The car’s odometer reading at the start and end of the logbook period
  • Details of each journey including start date and finishing date. I.e odometer readings at the start and end, kilometres travelled, and reason for the journey.

You must keep the logbook for a period (at least 12 continuous weeks) . This must be a normal representative of your travel throughout the year.

You can then use this representative period to calculate your claim for five years if no change in use .

The Statutory Method

The other method is the Statutory method. The statutory method for car benefit FBT calculations is used when the operating cost method is not selected. Or if a car logbook hasn’t been kept . The other reason is if the formula provides a more favourable result.

The FBT benefit value is determined by multiplying the car’s cost by 20%. Then apportioning the amount for days of private use.

The Statutory Formula method applies a statutory fraction, currently, 20% regardless of kilometres travelled. Applied to the base value of a car to determine the FBT-taxable value of the car benefit.

Therefore you need to do a logbook. If you, don’t you may find in an ATO review or Audit they may not accept your motor vehicle claim a

Business % of expenses is claimed based on your logbook records once you keep it for 12 weeks. You don’t need to do it beyond this or do another logbook until your travel circumstances change. By change, this means your use of the vehicle changes from the previous usage. i.e you are no longer required to do lots of business travel

Don’t forget you can also only claim the business usage of the GST as well and must adjust for private %

What can I claim for my car expenses

So as a small business what can I claim?

  • Your car is used for business trips to visit customers pick up supplies and other business activities such as business travel etc document in your car logbook.
  • I work from home can I claim my car 100% – no you need to still justify your travel and ensure your home is your real base to start the travel
  • I drive to work and then take the company car so its 100% usage. Providing the logbook states that and its garaged at work then it may be claimable 100%
  • I drive to and from my place of business – this is considered private and not claimable
  • I pick up the mail around the corner after this is the rest of the trip to my business claimable – no there is a famous case about this.

Commercial vans and Utes above one tonne generally don’t need to have a logbook but check with us.  However, say you are a hairdresser and buy a one-tonne pickup, will this exempt me from the logbook requirements? Probably not as the car isn’t being used for the purposes of trade but rather for you to get to the salon

If you have a sedan and need to carry heavy tools you can sometimes justify a greater business use from home to work

Car in a Trust or Company

So my Trust or Company provides me with a car to use who pays the FBT

In this case, you must work out a private usage of the car and declare this as a contribution by the Trust. This offsets the private usage and ensures the Trust only claims the business usage

I am in a Company with joint shareholders. The Company pays my petrol can I claim the car expenses in my own name?  Again as a shareholder, you need to either reimburse the Company or the Company needs to pay FBT. You can offset the petrol costs against the employee FB contribution.

If you are reimbursed for car expenses the expenses cannot be claimed again.

It pays to keep a logbook and determine the right business usage and thereby ensuring you can claim the right amount for tax and keep the taxman happy.

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