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
01 Aug 2020
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.
03 Jul 2020
Thursday, 13 June 2019 – Rise of the boutique law firm Doing business with international partners – whether it be an entity operating on Australian soil or a local brand venturing offshore – can be fraught with difficulty. Between establishing a fresh customer base, navigating new laws, regulations and corporate governance, creating effective relationships and becoming nuanced with cultural mores (perhaps the trickiest of all), the business of doing business has the potential to bring an enterprise undone. For instance, exchanging a business card using one hand rather than two can be seen as a sign of disrespect in some cultures. Who would necessarily know? With Australians increasingly undertaking business across the world and with Asian powerhouses such as Japan, Korea and China, navigating the behind-the-scenes landscape, as well as providing direct services and advice, has become all important. Business owners and operators need to focus on what they do best, so employing people who specialise in troubleshooting make-or-break sensitive legal, technical and cultural matters is a vital and strategic move. Sydney’s H & H Lawyers offers this official and unofficial role in its capacity as a firm on the path to being Australia’s biggest ‘‘Asian’’ law firm. H & H Lawyers’ services include commercial and corporate advisory, acquisitions, dispute resolution, employment law, corporate migration and intellectual property. “Our bilingual lawyers have been inundated with work representing multinational corporations and government agencies from Japan, Korea and China that want to expand their businesses into Australia,” says Principal Ken Hong. “We have also been very busy acting for local clients with Japanese, Korean or Chinese backgrounds, or that have transactions with their counterparts in those three countries. “Demand for our services has escalated, so we are rapidly expanding to meet the demand.’’ Fellow Principal Yukio Hayashi says a vital aspect of the firm’s work includes “bridging fundamental cultural differences”. “This cross-cultural dexterity is not necessarily part of our brief, but it’s what we offer as well, as it is so essential,’’ he says. “Our team not only speaks the languages, but also intimately understands the cultural nuances of Asia. This saves our clients so much time in getting straight to the actual issues and resolutions. Without the right knowledge of culture, a lot of key messages can be lost in translation, particularly legal concepts, leading to a frustrating experience for all. “We had one situation recently in which there was an investment in an Australian business by a Japanese company. There were excellent managers and staff in situ, but the incoming management from Japan had their way of doing things that did not rest well with the Australian team, and vice versa.” “This friction was no one’s fault, but we made it our job to navigate the cultural minefield. We were able to get each side to see things from the other’s perspective and that made all the difference.” Hong and Hayashi say that by going this extra mile, the law firm can resolve difficulties and help international-facing businesses to thrive. “The importance of Australia’s trade relationships with Korea, China and Japan need no further explanation,’’ says Hong. “They are our top three trading partners. We look forward to continuing with our work and contributing to Australia’s successful trade relationships with those three countries.” Says Hayashi: “Our firm is well placed and equipped to help clients have a more fruitful, efficient and enjoyable experience in doing business.’’
13 Jun 2019
H & H Lawyers welcomes Tin-Lok Shea. Tin-Lok has over eight years’ experience working in the tax practices of Big 4 professional services firms. Prior to joining H & H Lawyers, he was an Account Director in Deloitte Tax Services and assisted clients on the implications of various complex and high-profile transactions involving multi-nationals and governments (including a number of Japanese clients). His extensive experience and expertise in the tax field makes him especially well-equipped to advise and assist clients on all types of tax-related matters.
18 May 2017