Who would have guessed that the impact of COVID-19 would also be felt when preparing your tax return? With various restrictions in place since March 2020, meaning many people have been work from home, more than ever it is important to understand what expenses you can and can’t claim as a tax deduction. In recognition that going through expenses and apportioning what relates to work might not be most people’s cup of tea, the ATO has introduced a new method for calculating your deduction for work-related expenses for the 2020 financial year (called the “shortcut method”) with the view to reducing complexity. We have set out a summary of the three methods of calculating your deductions in the table below. If you plan on using a method other than the shortcut method, you will need to bear in mind the following general principles when claiming a deduction: You must have spent the money. The expense must be directly related to earning your income. You must have a record to prove it. So no, that shiny new coffee machine you bought is not likely to be deductible, even if you feel it’s the only way you can get through your working day. What you can claim What you can’t claim Requirements Shortcut method 80c for every hour worked at home for the period from 1 March to 30 June 2020. If you work 38 hour weeks, this would mean a deduction of just under $500. Actual costs of your expenses (e.g. utilities and equipment) – the 80c per hour is meant to cover all this. Record of the hours you have worked from home (e.g. timesheet, roster, diary, work records). Fixed-rate method · 52 cents for every hour worked at home to cover the cost of electricity, gas and depreciation of home office furniture. · Actual costs incurred for phone calls, internet, stationery. · Full cost of work-related equipment costing less than $300 (e.g. PC monitor). · Decline in value of work-related equipment over $300 (e.g. laptops and phones), based on their effective life. For laptops this is 2 years, desktops are 4 years, mobile phones are 3 years. See link below for ATO’s ruling as to effective life. Actual costs of electricity, gas and home office furniture (covered by the 52c per hour deductions). Non-deductible expenses, e.g: - Snacks - Toilet paper - Coffee, tea and milk - Luxury stationery - Childcare or home schooling costs - Items reimbursed by your employer. Dedicated workspace Comprehensive records: - receipts or other written evidence of amounts spent - statements with breakdown between work and private calls to determine percentage of work-related use for a representative period (4 weeks) - diary covering the representative period showing usual pattern of work - your work-related internet use - the percentage of the year you used depreciating assets exclusively for work. Actual expenses method · Actual cost of utilities, i.e. electricity and gas. · Actual cost of cleaning for the work area. · Actual costs incurred for phone calls, internet, stationery. · Repair costs for equipment and furniture. · Full cost of work-related equipment costing less than $300 (e.g. PC monitor). · Decline in value of work-related equipment over $300 (including furniture and fittings), based on their effective life. Non-deductible expenses per above. Dedicated workspace. Comprehensive records (as described above) of all costs. Can you claim the value of equipment you bought pre-COVID-19? You can claim the decline in value attributable to the period you used the equipment for work at home, provided it has not been written off already. For example, a laptop (which has an effective life of 2 years) bought one year ago will have one year of effective life left. If you used the laptop for work purposes, then you will allowed a deduction corresponding to the decline in value for that period. Say the laptop was worth $4000, and you used it for work purposes 50% of the time during 1 March and 30 June 2020. The deduction you get is under the prime cost method is: $4000 × A × B × C = $330 Where: A = 50%, being the percentage representing 1 year of the 2 year life; B = 33%, being the percentage representing 121 days of the year; C = 50%, being the proportion used for work. In this case, you are most likely already better off claiming under the fixed-rate method than the shortcut method, even if you don’t claim anything else (i.e. approximately $500 vs $654). On the other hand, if you bought the laptop more than 2 years ago, there will be no deduction. Can you claim expenses like your mortgage, rent and council rates? Most likely not if you are an employee simply working from home due to COVID-19 restrictions. These expenses can be claimed for example if you run a small business from home. The key criteria are: 1. The area claimed for occupancy expenses must be used extensively and systematically for taxpayer's work. This generally requires almost exclusive use for work such that the taxpayer and family have forgone domestic use of that room and/or that the room is not readily adaptable back to domestic use. 2. The home office is not just a mere convenient place to work. Note you don't get the full main residence exemption if your home is your principal place of business, although you're probably entitled to a partial exemption. Can I claim a deduction for amounts where my employer provided an allowance? Yes, but only if the allowance is included as income in your tax return (and assuming it is not a reimbursement). Can you claim travel from your home office to your actual office? No - your home is still a private residence and you cannot claim your trip from home to your regular workplace. Is Jobseeker tax-free? It depends. Jobseeker will still constitute income, so you will need to include it on your tax return. If you remain under the tax-free threshold (taking into account all your other income), then you will not need to pay any tax. If your income is over the $18,200 threshold, then you will need to pay tax. Early super withdrawals Please be warned that if you made an early withdrawal of your super improperly, there is a good chance the ATO may catch you in an audit. To have been eligible for the scheme, you must have been made redundant, working reduced hours of at least 20%, be unemployed or be eligible for welfare assistance such as JobSeeker (not JobKeeper), Youth Allowance or Parenting Payment. If you are a sole trader or run your own business, and have experienced a 20% or more fall in revenue, you are also eligible. If you made a withdrawal even though ineligible, you will be liable to pay tax on the amount withdrawn as well as penalties. If this is your situation, the best way forward is to come clean and make a voluntary disclosure. If you need assistance in this regard (or any other tax matters), please feel free to contact us. Link to ATO website: Home office expenses https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/ Link to ATO website: TR 2019/5 – Income tax: effective life of depreciating assets https://www.ato.gov.au/law/view/document?DocNum=0000014624&PiT=99991231235958&FullDocument=true
Introduction The NSW Parliament recently passed the State Revenue Legislation Further Amendment Bill 2020 which, among other things, clarified the situation concerning discretionary trusts when it comes to the imposition of surcharge purchaser duty and land tax applicable to foreign persons. The Bill also makes amendments to provide exemption from and refunds of surcharge purchaser duty and surcharge land tax by the trustee of a discretionary trust if the trust prevents a foreign person from being a beneficiary of the trust. Surcharge duty and land tax For the past 4 years, the NSW State Government has been imposing a surcharge stamp duty and land tax for foreign purchasers/owners of real property in New South Wales. If residential property is held by a “foreign person”: Surcharge stamp duty, of an additional 8% when purchasing property; and Surcharge land tax, of an additional 2% annually based on land ownership as at 31 December, will be payable on top of the usual rates of duty and land tax (if any). Given that the tax-free threshold for land tax does not apply to surcharge land tax, even for a property with a registered land value of $500,000 surcharge land tax of $10,000 is payable (i.e. even when no standard land tax is payable). Family trusts potentially subject to surcharge People who do not have citizenship or PR are understandably caught by the surcharge regime, but what has surprised many is that a number of locally established family trusts (which generally take the form of a discretionary trust) fall under the definition of “foreign person”. This is because a discretionary trust is deemed to be a foreign person if any one of its potential beneficiaries (even if not a taker in default) is a foreign person. In this regard, it doesn’t matter that the trustee has not and does not intend to distribute to such beneficiaries, and the potential foreign beneficiaries are not named. Often, family trust deeds will specify as potential beneficiaries not just named family members, but such members’ families (usually widely defined, e.g. parents, siblings, uncles/aunts, nieces/nephews, grandchildren), as well as companies/trusts in which any of the beneficiaries have an interest, and in many cases charitable institutions (including overseas institutions). To see the wide-reaching operation of this deeming provision, the NSW Revenue website gives the following example: Say that XYZ Discretionary Trust is a trust whose beneficiaries include A (as a named person) and any company or trust in which named beneficiaries have an interest. Person A in turn owns 1 share in ABC Pty Ltd, which is majority owned by a foreign person B. In this case, XYZ Discretionary Trust will be deemed to be a foreign person because ABC Pty Ltd is a potential beneficiary of XYZ Discretionary Trust. If XYZ Discretionary Trust purchases real property in NSW, then surcharge purchaser duty and surcharge land tax will become payable. In this case, it doesn’t matter that XYZ Discretionary Trust has never made a distribution to ABC Pty Ltd and never intends to do so. By way of further illustration, one recent family trust we reviewed specified as a potential beneficiary “schools, universities, colleges and other educational bodies of any kind either within or outside Australia”, which similarly resulted in the trust being a foreign person. Another way in which a family trust can be caught is when it includes extended family members who are not based in Australia. The new Bill clarifies and confirms this wide-reaching operation, with a new section introduced stating that “The trustee of a discretionary trust is taken to be a foreign trustee for the purposes of this Chapter unless the trust prevents a foreign person from being a beneficiary of the trust”. How we can assist If you are looking to acquire (or already own) real property through a family trust, the Bill allows an opportunity for family trusts to put through amendments into the deed to “prevent a foreign person from being a beneficiary of the trust” in order to manage any unintended surcharge purchaser duty consequences. Although the Bill allows for a buffer period until 31 December 2020, we recommend that your family trust deed be amended as soon as possible if the family trust would be deemed to be a foreign person under the surcharge provisions. If you are unsure whether the terms of your trust deed “prevents a foreign person from being a beneficiary of the trust”, H & H Lawyers will be happy to review your trust deed to check whether it might fall within the ambit of the surcharge regimes. If we find that the terms of the trust deed causes your family trust to be deemed a foreign person, we can then further assist in implementing the necessary amendments to the trust deed.
Since the introduction of Superannuation Guarantee in 1991, most Australians will have some form of superannuation as part of their asset. For most, by the time they approach their retirement age, superannuation will usually be their biggest asset besides their residential property. The younger generation, as they have just commenced their careers, would not have had much opportunity to accumulate significant superannuation saving or assets in their own names. Therefore, for most young adults, estate planning is something they will not consider until much later in their life. However, estate planning is important for all ages, including the younger generation, regardless of whether they own any significant assets. The reason for this is due to an automatic life insurance that is part of most superannuation. Most superannuation will include life insurance. For young adults, their superannuation death benefit payment from the life insurance will far exceed their superannuation savings balance. And in an untimely death of a young adult, the superannuation death benefit will usually be the largest asset that will be left behind. Most people assume that their superannuation death benefit will be automatically paid to their next of kin, but is it really? Often many fail to execute a binding death benefit nomination for their superannuation and this means the trustee of the superannuation fund can exercise their discretion when making a death benefit payment. Under the Superannuation Industry (Supervision) Act 1993 (SIS Act), superannuation death benefit must be paid to the following: current spouse; child of the deceased (including child of a current spouse); person in an interdependency relationship with the deceased; or deceased’s legal personal representative. Section 10 of the SIS Act states that an interdependency relationship exists where two people show, for the time period immediately before the death of the deceased, that they have a close personal relationship; live together; one or each of them provides the other with financial support; and one or each of them provides the other with domestic and personal care. In Superannuation Complaints Tribunal (SCT) determination D09-10\023, an eighteen-year-old man died (deceased) without a will. He had a girlfriend, who was living at her parent’s home. Three months before this young man’s death he moved into his girlfriend’s parents’ home and paid board of $70 per week. At the time of the death of the deceased, the deceased had only $1,537 accumulated savings in the superannuation account. However, due to the life insurance the death benefit payment from the deceased’s superannuation amounted to $131,437. The trustee of the deceased’s superannuation fund initially decided to pay the death benefit amount to the deceased’s parents but the girlfriend of the deceased lodged a complaint to SCT stating that she was in an interdependency relationship with the deceased. It was decided by the Tribunal to overturn the original decision of the trustee of granting the death benefit payment to the deceased’s parents and awarded the full $131,437 to the girlfriend whom he lived with for three months. To most people, this would seem like an unfair decision, but given the fact that the deceased lived away from his home, SCT said that his parents failed to fall into any of the categories listed by the SIS Act when considering to whom the death benefit was to be paid. Together with the absence of a binding death benefit nomination, SCT found that the girlfriend, despite the fact that they lived under one roof for only three months, was the only person that fit the definition of “interdependency relationship” at the time of death of the deceased. If the deceased desired for his next of kin, in this case his parents, to be the beneficiary of his death benefit payment then he should have executed a binding death benefit nominating his “Legal Personal Representative” as the recipient of his death benefit and then had a will in place leaving his instructions.
Purpose Approximately 2 years have passed since the federal government introduced the rules pertaining to ‘Single Touch Payroll’ (‘STP’). The particular policy enables the government to undertake more stringent monitoring over employers who are operating businesses within Australia in relation to their reporting obligations. Businesses operating with an employee headcount of 20 or more on the 1st of April 2018 were required to begin reporting to the ATO through a STP-enabled solution. For all other businesses, the use of STP had been implemented voluntarily through an opt-in solution. From the 1 July 2019, it has since become mandatory for all businesses to observe the new rules, regardless of the number of employees. Prior to the new rules, businesses had supplied their payroll data through generating payment summaries on an annual basis. The new system, however, will allow for businesses to automatically report their payroll data to the ATO on a pay-by-pay basis. Who needs to report? As previously mentioned, from 1 July 2019, all employers will be required to submit the following information to the ATO: Salaries & Wages and PAYG Withholding amount Ordinary Time Earnings Superannuation Guarantee Contribution The ATO has improved its operational framework by introducing the Super Cleaning House in relation to the employer's superannuation contributions, which simplifies for the ATO to learn any non-payments by the employers. Consequently, in light of the forthcoming implementation of the Single Touch Payroll starting from May this year, employers should be well prepared for the ATO's monitoring and regulation of any arrears of their superannuation contributions. By replacing the previous system, the STP system no longer requires employers to produce payment summaries to its employees. In addition, the new regulations carve out an exception when it comes to closely held payees. Accordingly, for those payments made to family members within a family business, company directors and shareholders and beneficiaries of a trust, the new regulations will not be made applicable until 1 July 2021. When must I report? STP reporting must occur prior to or on the day payments are made to the employee. How do I report? Most existing payroll or accounting solutions will likely include a function to report STP data to the ATO (E.g. Xero, MYOB). Employers who do not utilise payroll or STP-enabled software may nonetheless satisfy their reporting obligations by installing AusKey - an alternate software launched by the ATO. After installation, users may log into their Business Portal and report directly to the ATO. However, the alternative solution is time consuming with increased room for error when entering in key information. Thus, best practice would posit the use of STP-enabled software for fulfilling reporting obligations. Failure to comply From the 1 July 2019, in the event that an employer fails to comply, the ATO may impose relevant sanctions. Additionally, employers may find themselves subject to tax benefit exemptions or penalised for income tax. These may arise if, for example, employers make a salary payment without reporting PAYG withholding tax or failing to submit relevant tax returns. Taxable Payments Annual Report In addition to labour contracts, businesses operating in the provision of building and construction services, cleaning services and courier services were required to report any payments made to their contractors. Since the expansion of the new regulations, additional classes of businesses will be required to fulfil the same obligations. As a result, from the 1 July 2019, businesses providing the following services will also need to report information pertaining to payments made to their contractors for services: Security Service Road Freight IT Service The new STP regulations have introduced vital changes when it comes to employers’ reporting obligations. Stakeholders to which the new rules intend to cover will need to be all the more vigilant in ensuring compliance with the rules in order to avoid potential violation and associated sanctions. Written by Ben Youn, CPA & CTA Quantum house