Tax Tips

Income

What is a Living Away From Home Allowance?
A living Away From Home allowance is paid by employers when they require an employee to work in an area that is different to their normal workplace and the employer pays the costs to the employee for living away from home. For example, you live and work in Sydney and your employer sends you to Queensland for a few months to do some work there. They pay you an allowance for the costs of living in Queensland because they have requested you to work there for a time. You do not need to declare it as assessable income in a tax return. It is an allowance paid by an employer to an employee and is not subject to tax by the employee. No expenses can be claimed against this allowance.

Travel allowances for itinerant workers, on the other hand, may appear as assessable income on your PAYG Payment Summary. The cost of accommodation, meals and incidental travel expenses may be claimed against this allowance up to a certain limit without substantiation (receipts).

I won $100,000 on a game show this year, it this taxable income?
If you are a professional contestant it will be taxable. If someone appears as a regular contestant in these shows then they would be considered to be a professional. If your prize was from a one off appearance then it wouldn’t be taxable.

I have inherited some money. Is it taxable?
No. The inheritance is not taxable unless advised by the executor that part is taxable. However, if you invest the income from the estate then any earnings will be taxable.

Can my wife declare all the interest from our joint accounts in her tax return because her income is much lower than mine?
No. All income must be apportioned to each recipient on the same basis as the accounts are held.

My bank interest is only $10. Does this amount have to be declared?
Yes. You must declare all interest from all sources.

My 14 year old daughter has received $300 from a trust distribution. Does she have to lodge a tax return?
Not if this is her only income. A minor may earn up to $416 from investments before any tax would be payable on unearned income. Since 1 July 2011 minors are denied eligibility for the low income tax offset. Under previous rules, minors could earn up to $3,333 unearned income without paying tax.

I have shares and received franked dividends this year but have no other income. Do I have to lodge a tax return to get the franking credit refunded to me?
No. You can complete the Refund of Franking Credits for Individuals form which can be lodged by telephone or mailed to the ATO.

I have just received a letter from the tax office saying that I did not declare some interest from my bank account. What should I do?
You should contact your bank if you believe that this is incorrect, to verify the income details for your accounts. The bank should notify the tax office in writing if this information is not correct. You have 28 days to correct this information. However, if you have omitted the income you will not need to contact the ATO. They will amend your return and send you a new assessment requesting you to pay the additional tax, a general interest charge and, in some cases, penalties.

Do I need to declare my overseas pension?
Yes. In most cases overseas pensions are taxable. There are a few exceptions to this rule. Please call us if you are not sure.

Do I have to declare income from Centrelink (Newstart, Austudy) on my tax return?
Yes. It must be declared so that the tax office can determine how much tax is payable on other earnings for the year. At the end of the financial year you will receive a Payment Summary from Centrelink indicating how much must be included in your tax return (taxable amount). You may be entitled to a tax offset to ensure that no tax is payable on your benefit.

I have just moved permanently to Australia. Do I have to pay tax on the money that I have brought with me?
No. You will only have to pay tax on any earnings that you make from the time that you moved to Australia. If that money earns interest in a bank account you will have to pay tax on the interest.

Deductions

I have to buy tools/equipment for my job. What can I claim and how much?
You are able to claim expenditure incurred in replacing, insuring and repairing tools of trade that you use for earning your income. The amount you can claim will depend on what records you have kept.

My job requires me to keep my knowledge up to date and I buy books and journals. Can I claim them all?
If technical books, trade books or journals are necessary to fulfil job function efficiently then the cost of their acquisition is deductible.

Can I claim a deduction for sun protection items?
A deduction is available for outdoor workers who buy sunscreen lotion, sunglasses and hats for use at work. The claim must be substantiated and adjusted for private use.

I have incurred travel expenses this year. What can I claim?
Your travel must be relevant to your job function for you to claim a deduction for those expenses. Where this is the case you can claim the cost of transportation and incidentals. If your travel involved an overnight stay you would be able to claim for meals.

I keep a room set aside in my house for a home office and would like to claim some expenses.
If a taxpayer carries on all or part of their employment activities from home, then a reasonable portion of the home office expenses can be deducted. A notional claim of 34c per hour for home office running expenses can be claimed instead of actual power usage. Where a home is a place of business, deductions can be claimed on the following items of expenditure – interest, rent, house insurance, council rates, heating and lighting, depreciation, insurance, repairs, cleaning, pest control, maintenance, decorating and telephone.

I need to have a telephone for making and receiving business calls and would like to know what I can claim.
Installation costs are not deductible. However, part of the rental costs are deductible where a taxpayer is required to make calls from home. Call costs would be deductible and a log of calls must be kept. Mobile phones are claimed in the same way. We can recommend how to apportion your claim most appropriately for your circumstances.

I have had to pay for child care during the year. Is this claimable on my tax return?
These expenses are not claimable as a tax deduction. Eligible taxpayers may be able to claim the Child Care Benefits and Rebates through Centrelink.

Can I claim anything for the cost of my children’s education?
No. Child education costs are not a deduction for tax purposes.

I am expected to maintain a well groomed appearance. Can I claim these expenses?
Expenditure on personal grooming and haircuts are generally not deductible. There are exceptions for taxpayers involved in the performing arts fields.

My employer expects me to wear specific clothing for work? What would I be able to claim?
Compulsory uniforms are generally deductible provided they identify you as an employee of that organisation. A requirement to simply wear specific colours is not enough to make the clothing deductible. Corporate wardrobes are also deductible if certain conditions are met. The uniform design must be registered with AusIndustry. You may also claim maintenance costs (laundry, dry cleaning and repairs) for tax deductible clothing. The cost of protective clothing and safety footwear is deductible.

Can I claim fees paid to my tax agent?
Fees paid to a registered tax agent for preparation of your return, amendments and generally handling your tax matters are all deductible. You can also claim travel to your registered tax agent. Registered tax agents are the only people legally able to charge for the preparation of tax returns.

I buy tea towels from a charity each year when they ring me. Can I claim this as a deduction?
No. You are receiving something for the money expended. This is considered to be a purchase not a donation. The same applies to the purchase of raffle tickets.

Am I entitled to claim $300 work related expenses as this does not have to be substantiated?
No you cannot just claim $300. You must actually incur any expense before it is claimed. Whilst you may not need receipts for expenditure up to $300 you must have still spent the money and it must be relevant to your employment.

Can I claim for the maintenance I pay my ex wife for my children?
No. Maintenance payments are not claimable.

Is there a limit on how much I can claim as a tax deduction each year?
There is no limit on the amount claimed each year. The expenditure must be work related and you may need receipts to substantiate the expenditure. Keeping incomplete, incorrect or no records at all may be limiting your ability to claim deductions. Advice can be obtained from a registered tax agent. We are happy to advise our clients on appropriate record keeping enabling them to maximise their allowable deductions.

Is a credit card slip acceptable as a receipt?
Yes, provided it gives full details of the supplier and date of purchase. Taxpayers can make a notation on the receipt indicating the type of goods that were purchased. Many taxpayers use the internet to purchase or pay for their work related expenses. The ATO will accept Bpay or email receipts provided they contain the necessary information: date, supplier, nature of the goods and the amount. It’s a good idea to back up copies of all your online statements and e-receipts to disc for safe-keeping.

How long do I need to keep my receipts?
Documentary evidence should be keep for five years from the date of lodgement of the tax return in which the claims are made.

Education

Can I claim my Self Education costs?
There needs to be the necessary nexus (connection) to your current income for these expenses to be claimable. This means that the Self Education needs to help you in your current job and not be undertaken to open up new job opportunities.

Example 1:
Andy is a retail sales assistant who is studying for a Pharmacy degree so that he can become a pharmacist. The expenses related to the study are not allowable as the study is designed to open up a new income-earning activity.

Example 2:
Tina, a trainee accountant, is studying commerce part-time at university. She is allowed a deduction for the costs associated with the course because the course enables her to maintain or increase the specific knowledge required in her current position and to carry out her duties more effectively.

Are my education expenses claimable against AUSTUDY?
No. The tax office has ruled that deductions for education expenses are not deductible against AUSTUDY income.

Can I claim the costs of seminars?
Yes. The costs are tax deductible provided that they relate to your current income producing activities and are not of a private nature.

Can I claim my uni course fees or HELP debt repayments?

You can claim a deduction for tuition fees payable under FEE-HELP, VET FEE-HELP and OS-HELP (for example, post-graduate course fees) when the cost is incurred. However you cannot claim a deduction for the later debt repayments, nor for contributions or repayments you make under the HECS-HELP scheme (e.g. for undergraduate course fees).

Business

Small Asset Purchases

If the asset purchase is less than $1,000, an immediate deduction is available in the 2011 tax year. The threshold for small asset write-off for small businesses goes up from $1,000 to $6,500 from 1 July 2012. Assets costing $1,000 or more (in 2010-11) or $6,500 or more (from 211-12) may be depreciated in a SBE General Pool at 15% in the first year and 30% in the following years. You include assets with an effective life of 25 years or more in the Long Life Pool.

Small Business Capital Gains Concessions

You are a small business if you carry on a business and your business turnover (aggregated turnover) is less than $2 million. If you are aged 55 or older and retiring or are permanently incapacitated, and your business has owned an asset for at least 15 years, you won’t pay CGT when you sell the asset. If you’ve owned an asset to conduct your business (an ‘active asset’) you’ll only pay tax on 50% of the capital gain when you sell the asset. There is CGT exemption on the sale of a business asset, up to a lifetime limit of $500,000. If you are under 55, money from the sale of the asset must be paid into a complying superannuation fund or a retirement savings account. If you sell a small business asset and buy a replacement asset or improve an existing one, you can defer your capital gain until a later year.

Motor Vehicles

From 1 July 2012, small businesses will be entitled to additional one-off depreciation deduction of $5,000. The remainder of the purchase cost is depreciated as part of the general small business pool at 15 per cent in the first year and 30 per cent in later years. The positive aspect of this initiative is that it applies to both used and new motor vehicles. If a tradesman purchases a ute that costs less than $6,500 after 1 July 2012, which is used for business purposes only, then it will be able to claim full amount as the vehicle is under the small asset threshold. If the motor vehicle cost say $14,000 the business could deduct $6,350 in its first year ($5,000 + 15% x ((100% x $14,000) – $5,000) = $6,350. If this vehicle was purchased before 30th June, the depreciation claimable would amount to $2,100 so the added tax advantage and cash flow benefit is quite significant.

Entrepreneurs tax offset (ETO)

This financial year will be the last where businesses with a turnover of less than $75,000 will be able to claim entrepreneurs tax offset. The ETO provided small businesses with a tax offset of up to 25 per cent of their tax liability on their business income. Over 400,000 small businesses claimed this offset in 2008/09. The ETO will cease from 1 July 2012 to make way for higher small asset write off threshold (see above). If you meet the eligibility requirements make sure you fully exploit this offset before it disappears.

Obsolete stock or capital items

If you have slow moving stock which is unlikely to sell, then the best option is to bite the bullet and physically write it off prior to the 30th June to obtain a tax deduction. For the remaining stock on hand you have the choice of valuing it at actual cost, replacement cost or market selling price. The closing value of trading stock effectively forms part of assessable income, so a lower value will result in a deferral of income and therefore tax. Similarly, for capital assets that can no longer be used. You can claim a tax deduction for the written down value of any obsolete assets that are actually written off in the fixed asset register on or before 30th June.

Writing off debtors

Similar to writing off obsolete stock, a business can claim a deduction for a debt that was physically written off prior to 30th June. If you are on a cash basis you cannot get a deduction as the debt must have been originally shown as income in order for the write-off to be allowed. Also do not forget to claim a refund of the GST paid to the ATO on the sale, as the GST adjustment is often overlooked.

Prepaid expenses

Another tax deferral strategy is to pre-pay expenses for the next 12 months. Small business entities for tax can generally obtain a full deduction in the year of payment, so long as the prepayment is not for more than 12 months and finishes before the end of the following income year. Businesses should review which expenses can be prepaid and whether they have adequate cash flow to take advantage of this strategy.

Superannuation

Superannuation cap to be reduced to $25,000 (regardless of age)

The Government was proposing to reduce the cap that applies to concessional superannuation contributions on 1 July 2012 from $50,000 per annum to $25,000 per annum for people aged 50 or over with more than $500,000 in superannuation. This measure has now been deferred until 1 July 2014. As a result there will be only one concessional contribution cap regardless of age which will play havoc with retirement plans for those over 50.

Concessional contributions include the superannuation guarantee and other employer contributions (such as salary sacrifice), personal contributions claimed as a tax deduction (subject to 10 per cent rule), and other amounts.

If you are likely to be impacted by the concessional cap reduction, you should consider taking full advantage of the current limit of $50,000 prior to 30 June this year. It’s a no brainer if you have the cash flow to do it. Even if you have less than $500,000 in superannuation, it’s still a good strategy to top up as much as possible as you cannot carry over any unused cap in following years. If you are 50 or over, you are likely to have less than 15 years until you retire. So with the retirement clock ticking, under utilising this year’s cap means less money to generate a tax-free income at age 60 and over.

In the federal Budget just handed down, the Government also proposes to introduce a superannuation surcharge for high income earners whose adjusted taxable income exceeds $300,000. Instead of 15 per cent tax rate, a rate of 30 per cent will apply to their concessional contributions. This is another good reason for high income earners to maximise this year’s concessional contributions ahead of the proposed super surcharge.

Warning: Be careful not to breach the contribution caps as you will be stung by draconian excess contribution tax. Whilst new rules allow you to get a refund of up to $10,000 of excess contribution for first time offenders who exceed the cap, it’s a hassle you can do without.

Non concessional contributions

You will need to review your concessional contributions and adjust them where necessary if you are over 50 years of age and contributing over $25,000 in concessional superannuation. Where surplus investible funds become available, it may be worthwhile making additional non-concessional superannuation contributions, which are subject to a different cap ($150,000 or $450,000 – bring forward 3 years worth).

Whilst concessional contributions are the most tax effective way to invest in superannuation, after tax or non-concessional contributions still make sense as they too enjoy tax benefits.

The fund only pays 15 per cent tax on earnings and once you start a pension both earnings and your pension is tax free after age 60, setting yourself up for tax free income forever.