How GST impacts the sale of a business property

How GST impacts the sale of a business property

Selling your business property is a major financial transaction that you'll want to get right. Focusing on the sale price may seem like common sense, but this can be a costly mistake. Many owners forget to factor GST into their thinking. But if you do, you could find yourself left with a big tax bill to pay.

There are also valuable opportunities to claim GST credits on your transaction costs, so it’s important to retain all your paperwork in order to satisfy the ATO when tax time rolls around.

GST and commercial property

In general, if you sell business property such as a shop or factory and are registered - or required to be registered - for GST, you must apply GST to the sale amount and include it in your business activity statement (BAS). For example, if you sell an office suite for $1,100,000 (GST inclusive), you need to pay $100,000 to the ATO for GST.

If you are unregistered but liable for GST and fail to make your sales price GST inclusive, you will be forced to pay the GST liability from your own pocket.

As a vendor, you can claim GST credits on any costs involved in selling your business property, such as the GST included in the fees you pay to your real estate agent. If there are settlement adjustments for costs such as council and water rates when you sell, these must be included in your BAS.

The eligibility rules for claiming your credits include that:

  • GST was paid at settlement,
  • Both you and the purchaser are GST registered,
  • Tax invoices are available for the goods and services you are claiming, and
  • Your deduction claim is lodged within four years.

Going concern sales

One way around the GST requirement is if you sell your enterprise and business property as a 'going concern'. These sales are GST-free, but to qualify the ATO will require the business to continue operating into the foreseeable future and be appropriately resourced.

To be eligible for this concession, the business sale must be for payment, the purchaser must be registered for GST, and both you and the purchaser must agree in writing the sale is for a ‘going concern’.

In this situation, although there is no GST liability on the sale, both you and the purchaser may be able to claim GST credits on any related expenses.

It’s worth noting that in a going concern sale, a purchaser may pay less stamp duty, as this is normally calculated on the GST-free price, rather than GST-inclusive price.

Using a margin scheme

If you are eligible, you may also be able to use a margin scheme to reduce the amount of GST owed on your property sale.

Under the margin scheme, the 10 per cent GST payable on the sale amount is calculated on the sale margin (which is usually the sale price less the amount for which the property was originally purchased), rather than the full sale price.

Although it can be worthwhile using the margin scheme, the rules around eligibility are complex, so talk to us before reaching an agreement with your purchaser.

If you are considering trying to avoid the GST issue, remember the ATO regularly receives data relating to purchases and sales of properties around Australia and matches this against activity statements. If you fail to report a sale in your BAS, the ATO will likely catch you out.

Tools to help

To make things a little easier for vendors, the ATO has a GST property decision tool that helps determine the GST implications of property-related transactions.

The online tool asks a series of questions to work out the GST classification of a property transaction and establish eligibility for the margin scheme.

The ATO’s property decision tool requires you to enter information on the date you acquired the property, planned settlement date, amount you paid to acquire the property, past transactions for the property and whether GST was applied, and whether you are registered for GST.

Call us if you are planning to sell a business property and would like to know more about the GST implications.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tax Alert September 2021

Tax Alert September 2021

Although smaller businesses are now enjoying a lower corporate tax rate, their quarterly super bills have gone up, following the latest indexed rise in the Super Guarantee rate.

Here’s a roundup of some of the other key developments when it comes to the world of tax.

SME tax rate drops

With business conditions remaining tough, small and medium companies will welcome the lower corporate tax rate applying from 1 July 2021. Businesses with a turnover under $50 million are now only up for tax of 25 per cent.

This reduction was part of legislation passed back in 2018 to gradually reduce the corporate tax rate from 27.5 per cent to 25 per cent.

More small companies are eligible for this lower rate as the turnover threshold to access a range of tax concessions has been lifted from $10 million to $50 million.

Reminder on SG increase

If you are an employer, don’t forget the Superannuation Guarantee (SG) rate increased by 0.5 per cent on 1 July 2021, making the annual rate 10 per cent.

When paying SG contributions for the July to September quarter for your employees, check your calculations are based on the new, higher rate to ensure you don’t run into problems with the ATO.

The higher SG rate may also increase your Workcover premiums and payroll tax liability.

Tax status of COVID-19 grants

If your business is taking advantage of the financial support provided by state and territory governments during pandemic lockdowns, it’s essential to check the strict tax rules covering these grants.

Most of these financial supports have been given a concessional tax status and are classed as non-assessable non-exempt (NANE) income, but only grants paid in the 2020-21 and 2021-22 financial years currently qualify.

For the grant to qualify for NANE income tax status, your business’s aggregated turnover for the current year must be under $50 million. You are also required to be carrying on a business in the current financial year and the grant program must be declared an eligible grant through a legislative instrument.

Continuation of full expensing and loss carry-back

In more good news, eligible business taxpayers who took advantage of the government’s full expensing and loss carry-back measures in the past financial year will be able to use them again this financial year.

The temporary full expensing regime was introduced to help businesses with an aggregate annual turnover of under $5 billion to cope with the financial challenges of the pandemic. Eligible businesses can deduct the full cost of any eligible depreciable assets purchased after 6 October 2020.

Similarly, eligible companies will also be able to carry-back tax losses from the current income year (2021-22) to offset previously taxed profits going as far back as 2018-19 when they lodge their business tax return.

FBT exemption for retraining and reskilling

The ATO is reminding employers that if they provide training or education to employees who are made redundant, or soon to be redundant, the cost is exempt from fringe benefits tax (FBT).

Eligible employers using the exemption are not required to include the retraining in their FBT returns, or in the reportable fringe benefits listed in the employee’s Single Touch Payroll reporting or payment summary.

You are, however, required to keep a detailed record of all the training and education provided if you intend claiming this exemption.

Changes to SuperStream

And finally, a reminder that from 1 October 2021, self-managed super funds (SMSFs) will only be able to roll member benefits into and out of their fund using SuperStream. Some electronic release authorities will also need to be processed using SuperStream.

SMSF trustees need to ensure their fund will be ready to meet the new requirements by checking the details recorded with the ATO are up-to-date for both the fund and its members.

Trustees should also check they have provided the ATO with details of the fund’s ABN and unique bank account for super payments.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


what are franking credits

Franking Credits In Australia: What Are They and How Do They Work?

what are franking credits

Franking Credits In Australia: What Are They and How Do They Work?

Australian shares are popular investments with self-funded retirees and anyone who depends on income from their investments, due in part to the favourable tax treatment of franked dividends.

After falling off in the early days of the COVID pandemic, share prices and dividends bounced back strongly in the year to June 2021.

Investors who depend on income from their shares also have more certainty now that the Labor Party has dropped its opposition to cash refunds of excess franking credits, a policy that attracted fierce resistance from retirees at the last federal election.

The hunt for yield

In a low interest rate environment, dividend yields on Australian shares compare favourably with near-zero interest rates on bank term deposits and historically low yields on government bonds.

Over the past 40 years, the dividend yield on Australian shares has averaged just over four per cent and many stocks pay more, (dividend yield is the sum of dividends over the past 12 months divided by the current share price). In fact, dividends account for roughly half the total return from Australian shares over the past 20 years.i

These dividend yields are even more attractive when the tax benefits of franking credits are included, especially for investors in retirement phase.

What are franking credits?

Franking credits represent tax a company has already paid in Australia on any profits it distributes to shareholders by way of dividends. The company tax rate in Australia is currently 30 per cent, or 25 per cent for companies with turnover of less than $50 million.

Shareholders can then use these franking credits, also known as imputation credits, to offset their tax liability on other income, including salary, at the end of the financial year. People who pay no tax, such as investors in retirement phase, can claim a full tax refund from the ATO.

If your marginal tax rate is less than the company tax rate of 30 per cent, you may be eligible to receive a refund of the difference between the franking credit and your tax payable.

This is one reason SMSFs are so attracted to shares in Australian companies that pay fully franked dividends. Super funds pay a top income tax rate of 15% and no tax on the earnings or income of investments supporting a retirement pension.

Am I eligible for a tax refund?

You may be eligible for a refund of excess franking credits if all the following apply:

• You receive franked dividends on or after 1 July 2000 either directly or through a trust or partnership

• Your basic tax liability is less than your franking credits, after taking into account any other tax offsets you are entitled to.

• You meet the ATO’s anti-avoidance rules, designed to ensure everyone pays their fair share of tax.
You will also need to keep dividend statements from companies that paid franked dividends to support your claims.

So how does franking work?

Franking credits have different impacts depending on your marginal tax rate and whether your share investments are held inside or outside super.

Say you own shares in a company which pays a fully franked dividend of $700. Your dividend statement says there is a franking credit of $300, which represents tax the company has already paid. This means the dividend before company tax was deducted would have been $1,000 ($700 + $300).

In your annual tax return, you must declare the full $1,000 in your taxable income. The after-tax value of the dividend will then depend on your marginal tax rate.

If you hold the shares in an SMSF tax-free pension account, you will receive a total dividend payment of $1,000, $700 dividend plus a full cash refund of the attached franking credits.

If you hold the shares in an SMSF accumulation account (with 15% tax), you will receive $850, $700 dividend plus a $150 cash refund of franking credits.

If you hold the shares in your own name there will be some tax to pay on your dividend income, but significantly less than you would otherwise have paid without franking credits.

If you would like to discuss the taxation of share dividends and the role they play in your overall investment strategy, please give us a call.

i https://www.bt.com.au/personal/smsf/manage-your-smsf/investment-insights/the-search-for-dividend-yield-in-a-low-growth-environment.html

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Lease vs buy business assets in Australia. Which is best?

Lease vs buy business assets in Australia. Which is best?

If you're a business owner, you may be thinking about acquiring new equipment as conditions continue to improve in Australia. There are two main options for doing this: lease or buy. When weighing up which is best for you, you have a few factors to consider, including the need for future flexibility, your risk tolerance and the type of industry that you work in.

The question is, which way will provide your company with more value? In some cases, leasing may make more sense but in other scenarios purchasing may be a better option. Let's take a look at some of these different points so you can decide which route is best for you!

Whether it’s a new delivery van or a high-end digital printer, problem free equipment and tools are essential to keep your business running smoothly.

In the May 2021 Federal Budget, the government announced full write-off of eligible business assets will be available for another year, so the opportunity to tool up is even more attractive.

Issues to consider

Unfortunately, deciding the best way to acquire business assets is not always straightforward as you weigh up whether to buy outright or lease.

With leasing, you are able to use the plant or equipment under the terms of a contract and return it when your lease expires. Whereas buying means you purchase and own the equipment outright. If you have insufficient cash to buy an asset, you can also finance your purchase and repay the lender over time.

For both buying and leasing it’s not just the immediate costs and tax benefits you should bear in mind. You need to calculate the total costs, including ongoing maintenance, usage conditions, termination fees and equipment return.

You also need to review whether your business’s cash flow is steady and reliable, and allows you to commit to regular lease payments, or is subject to seasonal fluctuations.

Impact on your tax bill

A key factor to consider when it comes to the lease or buy decision is tax, as there can be valuable tax benefits if you buy an asset outright.

At the moment, the government’s COVID-19 temporary full expensing provisions provide a significant tax incentive to buy new equipment. These instant write-off incentives allow you to claim the cost of your asset against your business’s tax bill in the year of purchase.

For many eligible businesses, these tax incentives could tip the scales towards buying rather than leasing between now and 30 June 2023.

GST and leasing

The rules around claiming GST credits also favour purchasing.

When you lease equipment for your business it’s similar to renting, so you can only claim GST credits for your lease payments, not the total cost of the asset. For example, if you purchase equipment valued at $66,000 (including GST) you can claim back $6,000 in GST credits in your next BAS, but only a couple of hundred dollars for each monthly lease payment.

If you purchase a vehicle for business purposes valued at over the annual car limit ($60,733 in 2021-22), the maximum amount of GST credit you can claim is one-eleventh of the limit ($5,521 in 2021-22). If you pay luxury car tax on a vehicle you purchase for your business, you are unable to claim GST on the tax paid.

Leasing is still attractive

Although buying can be sensible for some businesses, if you have insufficient cash to cover the cost of new equipment leasing still offers benefits, especially while interest rates are low.

Leasing also allows you to keep working capital within the business and available for other uses. For example, if you want to acquire an asset worth $120,000 and finance it at 4 per cent interest, your business retains the $120,000 on its balance sheet and still has access to it if required.

What’s more, you may be able to invest the $120,000 and achieve a return higher than 4 per cent.

In addition, leasing is often more appropriate for assets that rapidly become obsolete and need regular updating, such as IT equipment.

Leasing new equipment can also make it easier to match regular monthly loan repayments to your business cash flow, rather than having to make a large one-off outlay for the asset.

Making your decision

Whichever way you are leaning – buy or lease – it’s important to review your business cash flow, your future growth plans and the current business and economic outlook.

Your personal approach to your business is also a factor to consider. Some owners prefer the certainty of ownership and not having to worry about a lot of fixed costs. For others, it’s more important to have access to the latest equipment and to focus on rapidly expanding their operation.

If you would like to discuss whether buying or leasing would be best for your business in the current economic environment, call us today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Tax Alert June 2021

Tax Alert June 2021

The Government is continuing to support COVID-affected businesses by extending most of its pandemic inspired tax offsets and benefits. But at the same time the ATO has micro businesses like contractors who fail to declare all their income in its sights.

Here’s a roundup of some of the key developments when it comes to tax.

LMITO extended again

For individual taxpayers, an important tax change is the Budget announcement of another one-year extension to the current low- and middle-income tax offset (LMITO) for 2021-22.

This welcome decision will provide a valuable tax offset of up to $1,080 for individuals and $2,160 for dual income families as taxpayers repair their post pandemic finances.

Continuation of full expensing and loss carry-back

Business taxpayers should also be happy with the Budget announcement of an extension to the full expensing and loss carry-back measures. Under the full expensing rules, eligible businesses with an aggregate annual turnover of up to $5 billion are able to deduct the full cost of eligible depreciable assets until 30 June 2023.

Eligible companies can also carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as 2018-19. This tax refund is available when you lodge your business tax return for the 2020-21, 2021-22 and 2022-23 financial years.

ATO tracks contractor payments

While the Budget provided tax incentives, contractors working in courier, cleaning, building and construction, road freight, IT, security and surveillance industries are increasingly under the tax man’s spotlight.

The ATO has announced it’s now combining data from its Taxable Payments Reporting System (TPRS) with its other data and analytical tools to ensure more than $172 billion in payments to contracting businesses have been properly declared. The ATO is now proactively contacting contractors identified as not declaring income reported by their customers through the TPRS.

New food and drink limits

The new reasonable weekly food and drink amounts businesses can pay an employee as a living-away-from-home allowance (LAFHA) have been released.

For this FBT year (starting 1 April 2021), the ATO considers it reasonable to pay an adult working in Australia a total food and drink expense of $283 per week. As an employer, if you pay more than this you will be liable for FBT on the LAFHA over this amount.

New tax umpire

Small businesses will now have more rights to pause or modify the collection of tax debts under dispute with the ATO.

The Budget included an announcement that small businesses will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal to have an ATO debt recovery action paused until their case is decided.

End to STP exemption

From 1 July 2021, the exemption for small employers on reporting closely held payees through the Single Touch Payroll (STP) system will end.

This exemption allowed small employers to not report payee information for any individuals directly related to the business. Closely held payees include family members of a family business, directors or shareholders of a company, or beneficiaries of a trust.

More support for brewing

The Budget also recognised the importance of small business entrepreneurs and technology-driven innovators, with incentives to spur economic growth.

Brewery and distillation businesses will also benefit from a new measure giving them full remission (up from 60 per cent) of any excise paid on alcohol produced up to a new $350,000 cap on the Excise Refund Scheme from 1 July 2021.

The Budget also recognised the growth in local digital gaming businesses, with a new Digital Games Tax Offset. From 1 July 2022, eligible game developers will be able to access a 30 per cent refundable tax offset for qualifying Australian games expenditure of up to $20 million a year.

The Government also plans to provide tax incentives for medical and biotechnology companies by introducing a new ‘patent box’ from 1 July 2022. Income from patents will be taxed at 17 per cent, rather than the normal 30 per cent corporate rate.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Counting down to June 30 - Ways to Reduce Tax and Boost Savings

Counting down to June 30 - Ways to Reduce Tax and Boost Savings

It’s been a year of change like no other and that extends to tax and superannuation. As the end of the financial year approaches, now is a good time to check some new and not so new ways to reduce tax and boost your savings.

With so many of us confined to our homes over the past year, the big deductible item this year is likely to be working from home expenses.

Home office expenses

If you have been working from home, the Australian Taxation Office (ATO) has introduced a temporary shortcut method which can be used for the 2020-21 financial year. This allows you to claim 80c for each hour you worked from home during the year.i

The shortcut method covers the additional running costs for home expenses such as electricity, phone, internet, cleaning and the decline in value of home office furniture and equipment.

Some people may get a better result claiming the work-related portion of their actual working from home expenses using the actual cost method.

Alternatively, if you do have a dedicated home office, you can claim using the fixed rate method. The fixed rate is 52c an hour for every hour you work at home and covers things like gas and electricity, and the decline in value or repair of office furniture and furnishings. On top of this, you may be able to claim the work-related portion of phone and internet expenses, computer and stationery supplies, and the decline in value of your digital devices.ii

Pre-pay expenses

While COVID has changed many things, some things stay the same. Such as the potential benefits of pre-paying next year’s expenses to claim a tax deduction against this year’s income.

Some examples are pre-paying 12 months’ premiums for your income protection insurance and work-related expenses such as professional subscriptions and union fees. If you are unsure what you can claim, the ATO has a guide for a range of occupations.

If you own an investment property, you might also consider pre-paying 12 months’ interest on your loan and other property-related expenses.

Top up your super

If your super could do with a boost and you have cash to spare, now is the time to check whether you are making the most of the contribution strategies available to you.

You can make tax-deductible contributions up to $25,000 a year, including Super Guarantee payments by your employer. You can also contribute up to $100,000 a year after tax. From July 1 these caps will increase to $27,500 and $110,000 respectively, so it’s important to factor this into decisions you make before June 30.

For instance, if you recently received a windfall and are considering using the ‘bring forward’ rule, you might consider holding off until after July 1. This rule allows you to bring forward two years’ after-tax contributions. By holding off until July 1 you could contribute up to $330,000 under the new limits.

Also increasing on July 1 is the amount you can transfer from your super account into a pension account. The transfer balance cap is increasing from $1.6 million to $1.7 million.

So if you are about to retire and your super balance is close to the cap, it may be worth delaying until after June 30. Finally, from 1 July 2020, if you are under age 67 you can now make voluntary contributions without meeting a work test. And if 2020-21 is the first year that you no longer satisfy the work test, you may still be able to add to your super if you had a total super balance below $300,000 on 1 July 2020.

Manage investment gains and losses

Now is a good time to look at your portfolio for any loss-making investments with a view to selling before June 30. Any capital loss may potentially be used to offset some or all of your gains.

Of course, any decisions to buy or sell should fit with your overall investment strategy and not for tax reasons alone.

For all the challenges of the past year, there are still many ways to improve your overall financial situation. So get in touch to make the most of strategies available to you to before June 30.

i https://www.ato.gov.au/general/covid-19/support-for-individuals-and-employees/employees-working-from-home

ii https://www.ato.gov.au/individuals/income-and-deductions/deductions-you-can-claim/home-office-expenses/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Budget 2021-2022 Focus on Tax

Federal Budget 2021-22: Focus on tax

Budget 2021-2022 Focus on Tax

Federal Budget 2021-22: Focus on tax

Support for Australia’s businesses and our personal finances was at the heart of this year’s Federal Budget as the Morrison Government continues its attempts to strengthen the post-lockdown economy.

Once again Treasurer Josh Frydenberg made tax measures a key part of his Budget speech, announcing extensions to several of the Government’s signature tax support measures, together with new tax incentives and funding for job training and skills. These measures are designed to boost the continuing recovery of small and family businesses, which the Treasurer called the “engine room of the economy”.

LMITO extended again

With a federal election due next year, a key Budget announcement was another one year extension to the low and middle income tax offset (LMITO) for 2021-22. This measure will provide a tax offset of up to $1,080 for individuals and $2,160 for dual income families.

Continuation of full expensing and loss carry-back

The temporary full expensing and loss carry-back measures announced last year are also being extended to help businesses bring forward investment and access tax benefits. Eligible businesses with an aggregate annual turnover of up to $5 billion will be able to deduct the full cost of eligible depreciable assets until 30 June 2023.

Eligible companies can also carry-back tax losses from the 2022-23 income year to offset previously taxed profits as far back as 2018-19. This tax refund will be available when companies lodge their tax returns for the 2020-21, 2021-22 and 2022-23 financial years.

Patent box

To provide incentive for Australia’s medical and biotechnology companies to commercialise their research, the Government is introducing a new ‘patent box’ from 1 July 2022. Income from patents will be taxed at a concessional rate of 17 per cent, which is significantly lower than the normal 30 per cent corporate rate. The new tax incentive is designed to encourage locally-based R&D and may be extended to the clean energy sector.

Adopting digital technology

As the digital economy continues to change the way we do business, small businesses will be supported to adopt digital technologies through a $12.7 million expansion of the Digital Solutions – Australian Small Business Advisory Service. They will also benefit from further $15.3 million in funding to help with the introduction of e-invoicing.

Employee share schemes reintroduced

To help businesses attract and retain talent, the Budget removes the cessation of employment taxing point for tax-deferred employee share schemes. This means tax on shares received as part of these schemes can now be deferred for up to 15 years.

New apprenticeship funding

The Government announced an additional $2.7 billion in funding for apprenticeships and traineeships. Businesses will be paid a 50 per cent wage subsidy over 12 months for new apprentices or trainees signed up by 31 March 2022.

There will also be an additional $500 million for low-fee or no cost training through the existing JobTrainer program to support training in digital skills and upskilling in industries like aged care.

New tax umpire

The Government is also making it easier for small businesses to pause or modify the collection of debts under dispute with the ATO. They will be able to apply to the Small Business Taxation Division of the Administrative Appeals Tribunal to have an ATO debt recovery action paused until their case is decided.

Removal of SG threshold

Small businesses with low-income or part-time employees will need to revisit their Superannuation Guarantee (SG) contributions. This follows the Government’s commitment to remove the current $450 per month threshold before an employer needs to start making SG contributions for an employee.

Tax cut for brewers and distillers

And finally, it’s cheers all round for our artisan brewers and distillers. From 1 July 2021, those eligible will receive full remission (up from 60 per cent) of any excise paid on alcohol produced up to the new $350,000 cap on the Excise Refund Scheme.

Information in this article has been sourced from:

- The Budget Speech 2021-22 - https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/ speeches/budget-speech-2021-22

- and Federal Budget support documents - https://budget.gov.au/

It is important to note that the policies outlined in this publication are yet to be passed as legislation and therefore may be subject to change.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Is Salary Packaging Actually Worth It in 2021?

Is Salary Packaging Actually Worth It in 2021?

The principle of ‘salary sacrificing’ may not sound very appealing. After all, who in their right mind would voluntarily give up their hard-earned cash. But it can have real financial benefits for some in terms of reducing your taxable income, which could see you pay less at tax time.

As we nudge ever closer to the end of financial year, it’s worth taking a look at salary sacrificing to see if it’s a worthwhile strategy to put into place for you.

A salary sacrifice arrangement is also commonly referred to as salary packaging or total remuneration packaging. In essence, a salary sacrifice arrangement is when you agree to receive less income before tax, in return for your employer providing you with benefits of similar value. You’re basically using your pre-tax salary to buy something you would normally purchase with your after-tax pay.

How does salary sacrifice work?

The main benefit of salary sacrificing is that it reduces your pre-tax income, and therefore the amount of tax you must pay. For example, if you’re on a $100,000 income, you may agree to only receive $75,000 as income in return for a $25,000 car as a benefit.

Doing this would reduce your taxable income to $75,000 which could lower your tax bill because you’re essentially earning less as far as the tax office is concerned.*

This arrangement must be set up in advance with your employer before you commence the work that you’ll be paid for and it’s advisable that the details of the agreement are outlined in writing.

What can you salary sacrifice?

According to the Australian Tax Office (ATO), there’s no restriction on the types of benefits you can sacrifice, as long as the benefits form part of your remuneration. What you can salary sacrifice may also depend on what your employer offers.

The types of benefits provided in a salary sacrifice arrangement include fringe benefits, exempt benefits and superannuation.

Fringe benefits can include:

• cars

• property (including goods, real property like land and buildings, shares or bonds)

• expense payments (loan repayments, school fees, childcare costs, home phone costs)
Your employer pays fringe benefit tax (FBT) on these benefits.

Exempt benefits include work related items such as:

• portable electronic devices and computer software

• protective clothing

• tools of the trade
Your employer typically does not have to pay fringe benefits tax on these.

Superannuation

You can also ask your employer to pay part of your pre-tax salary into your superannuation account. This is on top of the contributions your employer is already paying you under the Superannuation Guarantee, which should be no less than 9.5% of your gross (before tax) annual salary, though this may rise in the near future.

Salary sacrificed super contributions are classified as employer super contributions rather than employee contributions. These contributions are called concessional contributions and are taxed at 15 per cent. For most people, this will be lower than their marginal tax rate.

There is a limit as to how much extra you can contribute to your super per year at the 15 per cent tax rate. The combined total of your employer and any salary sacrificed concessional contributions cannot exceed $25,000 in a single financial year. If you exceed the cap, you could be charged additional tax on any excess salary sacrifice contributions.

Most employers allow employees to salary sacrifice into super, but not all employers will allow salary sacrificing for other benefits.

Is salary sacrifice worth it?

Salary sacrifice is generally most effective for middle to high-income earners, while there is little to no tax saving for people who are already in a low tax bracket.

If you are a middle to high-income earner, then it may be worth considering salary sacrifice to reduce your taxable income and to take advantage of some of those benefits.

Before you do, make sure you talk to us so we can help ensure it is an appropriate strategy for your circumstances.

*Note: This example illustrates how salary sacrifice arrangements can work and does not constitute advice. You should not act solely on the information in this example.

Source for all information in this article: https://www.ato.gov.au/General/Fringe-benefits-tax-(FBT)/Salary-sacrifice-arrangements/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Watch out for these scams involving tax, the ATO and COVID payouts

Watch out for these scams involving tax, the ATO and COVID payouts

Nowadays, tax season means it's scam season too. It's a time when scammers ramp up their activities with an arsenal of increasingly sophisticated scams. Here are some of the most common scams you're likely to encounter. Most of them are tax and ATO related.

Scammers are becoming increasingly sophisticated, so it pays to be aware of what is real and what is fake. Because unfortunately they’re not going away any time soon, with over 216,000 scams reported to Scamwatch during 2020, resulting in total financial losses of around $1.75 million dollars.i

Here are some recent scams to be aware of:

COVID-19 phishing

With increased communications being sent out due to the COVID-19 pandemic, this has also created ample opportunity for scammers. By pretending to be from official organisations, scammers aim to find out your personal information (such as your usernames, passwords, bank details, etc.) – this is known as phishing.

There have been emails and SMS messages impersonating the Department of Health and the ATO, providing links to what are purported to be information pages. One example is an SMS which says that you are due to receive a support payment and asks for your bank details.

To know what is real and what’s fake, don’t click on links in messages – instead visit the organisation’s website directly, or call them if in doubt.

Verifying your myGov details

Another common example of a phishing scam is receiving an email or SMS asking you to verify your myGov details. Often the message will have time pressure, saying that your account will be locked if you don’t do so within 24 hours.

You will get email or SMS notifications from myGov whenever there are new messages in your myGov inbox, however these messages will never include a link to log into your myGov account.

Automated calls regarding a suspended TFN

Your tax file number (TFN) is important for both you and/or your business’ tax and superannuation purposes, which is why hearing it has been suspended can be alarming. Linked to your name and date of birth, this piece of personal information should generally only be shared with the ATO, banks, your superannuation fund, the Department of Human Services and your employer.

Under law, any individual, organisation or agency that is allowed to ask for your TFN information must not record, collect, use or pass on your TFN (unless allowed under taxation, personal assistance or superannuation law).ii

A common scam involves an automated phone message advising you that your TFN has been suspended. The purpose of this is to convince you to pay a fine or transfer money to reactivate it.

The ATO do not suspend TFNs or need you to pay for reactivation, nor will they send unsolicited pre-recorded messages to your phone. So if you hear this scam message, hang up.

Tax debt

Another worrying message to receive is that you have tax debt that needs to be paid off. This scam is often done through SMS, voicemail and direct calls, whereby the scammer pretends to be from the ATO. They then will ask you for payment, which is often through methods such as cryptocurrency or gift cards.

Suffice to say this isn’t regular procedure from the ATO, so if you receive a call or message like this, ignore or hang up.

Scams are ever-evolving but are often based on similar concepts, as shown above. A helpful resource to keep up-to-date with current scams is the Scam Alerts page on the ATO website.

While scammers can be conniving and convincing, it’s important to err on the side of caution whenever you receive an unexpected message or call, or whenever your personal details are requested. Never give out any personal information unless you can independently verify the identity of the person or organisation you are providing it to.

Should you ever be unsure whether someone requesting your financial details is a trusted source, don’t hesitate to get in touch for our advice.

i https://www.scamwatch.gov.au/scam-statistics?scamid=all&date=2020

ii https://www.oaic.gov.au/privacy/your-privacy-rights/your-personal-information/your-tax-file-number/

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.


Worried about an ATO Audit? Read this before submitting your tax return

Worried about an ATO Audit? Read this before submitting your tax return

As the Australian Taxation Office (ATO) turns its attention to businesses and individuals who've used COVID-related support programs, many taxpayers are likely to find themselves on the tax man’s radar. Here are a few important points to consider before submitting your return.

There are a number of red flags that can spark the ATO’s interest in your business or personal tax affairs. At present though, having applied for early release of your super, or receiving government support through JobKeeper, definitely puts you at a higher chance of an audit.

The ATO has identified a number of concerning and fraudulent behaviours with both these programs and is auditing taxpayer applications, so it’s worth understanding the regulator’s powers and the importance of good records when it comes to your tax.

ATO’s authority to audit

When it comes to the tax audit process, the ATO has significant powers. It has the authority to gather information about you and your personal circumstances from a range of sources, including other government agencies such as Services Australia. The ATO can also seek information about your business from financial institutions including your bank and insurers.

Generally, the ATO’s preferred strategy is to request information from you using a cooperative approach. If you fail to respond appropriately, however, the tax office may decide to use its statutory or ‘coercive powers’. This involves issuing legal notices seeking information from you and your advisers.

It’s sensible to act cooperatively with the ATO from the outset, rather than force the regulator into coercing you into compliance.

If you do receive an ATO request for information, we can help prepare the necessary documents and your initial responses. We can also be a useful guide through the process if you receive notification of an upcoming audit.

Why good records matter

As a taxpayer, if you want to object to a tax assessment or question an audit decision made by the ATO, you need to prove the decision was incorrect or excessive.

In the event of an Administrative Appeals Tribunal review or Federal Court appeal about your tax assessment or audit, the statutory burden of proof rests with you. This means you must prove the assessment is excessive or otherwise incorrect.

There is a legal presumption the ATO’s assessment is correct, unless you can produce evidence to prove what the assessment should have been. That’s why it’s essential to keep good records to substantiate your overall tax affairs and any deductions you claim in your annual return.

Tips for good recordkeeping

The golden rule of good recordkeeping is that you must keep records that are relevant to your tax and super affairs for five years.

For businesses, your records must be safely stored in a way that protects them from being changed or damaged, and you must be able to show them to the ATO if requested. The records must be kept in English or be easily converted into English.

Your business records need to include the quarterly Super Guarantee (SG) contributions paid to your employees and how they were calculated, wages records (including directors’ fees), a list of creditors and debtors, stocktake records, tax invoices for purchases over $82.50, and your BPAY or PayPal records.

Common record-keeping errors

According to the ATO, common business recordkeeping errors are failing to keep accurate records of all your cash and electronic transactions, and not regularly reconciling sales into your business accounting software.

Many businesses and individuals also fail to accurately split the private and business portions of an expense and don’t ensure they have sufficient records to substantiate their claims for tax deductions.

The ATO can seek information or documents at any time – either before starting a compliance activity or during a review or audit – so it’s best to be prepared. An easy first step to assessing if your business records are up to scratch could be checking out the ATO’s online Recordkeeping Evaluation Tool.

If you would like help with an information request or audit notification from the ATO, call our office today.

This article is intended as an information source only and to provide general information only. The comments, examples, words and extracts from legislation and other sources in this publication do not constitute legal advice, financial or tax advice and should not be relied upon as such. All readers should seek advice from a professional adviser regarding the application of any of the comments in this article to their particular situation.