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The Tax Implications Of The Sharing Economy: What You Need To Know

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In Australia, any income earned by a job may be considered taxable income. Those who receive their income via the sharing economy are no exception to the rule.

In fact, further complications can result from incorrect understandings of how the income tax and goods & services tax may apply to those individuals. ‘

The sharing economy is a socio-economic system built around sharing resources, often through a digital platform like a website or an app that others can purchase the right to use for a fee.

Popular sharing economy services and activities that could be subject to income tax include

You need to remember some things about the income and goods & services tax for these popular sharing economy services, including:

Ride-Sourcing/Ride-Sharing

If you’ve ever caught an Uber or gotten a Lyft, you’ve been on the passenger side of ride-sourcing. The income received from ride-sourcing is subject to goods and services tax (GST) and income tax is applied to it. All drivers on ride-sourcing platforms in Australia must have an Australian business number and be registered for GST.

GST requires:

Income tax needs to:

Renting out all or part of your home

Renting out all or part of your residential house or unit through a digital platform can be an easy way to supplement your income, especially if you aren’t using the property at that time. If you do this, you:

Sharing Assets (Excluding Accommodation)

Assets that can be shared through a platform include personal assets (e.g. bikes, caravans), storage or business spaces (e.g. car parking spaces) or personal belongings like tools, equipment and clothes.

When renting out or hiring these (share) assets that you own or lease through a digital platform, you:

Providing Services

Providing time, labour or skills (services) through a digital platform for a fee requires you to report income in your tax return. Deductions for expenses directly related to earning this income can be claimed, and records must be kept to support these claims.

The following services that can be provided are considered to incur assessable income that needs to be reported in your tax return:

Those who fail to declare their income from their sharing economy side hustle may incur penalties in the form of interest on their tax bills or potential criminal charges.

You must ensure your tax return is correctly lodged and all income is declared if you are a gig economy worker. If navigating your tax return feels daunting, consider contacting us for assistance.

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Posted on 31 July '23, under Tax. No Comments.

Maximising Your Tax Deductions As A Home-Based Business

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Small business owners may be able to claim deductions for the costs of using their home as a principal place of business when filing their income tax returns.

A home-based business is one where an area of your home is set aside and used exclusively as a place of business. If you do not have an area set aside and used exclusively as a place of business, but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.

Tax deductions may be claimed for the business portion of household expenses; however, ensuring you are claiming expenses you are entitled to can be challenging. How you operate the business out of your home will determine the expenses that may be claimed. Your business structure will also affect your entitlements and obligations when claiming deductions on home-based business expenses.

Generally, three types of expenses can be claimed: running expenses, occupancy expenses, and in some cases, the cost of motor vehicle trips between your home and other locations (if the travel is for business purposes). You can claim occupancy and running expenses if you have an area of your home set aside as a ‘place of business’.

Running expenses refer to the increased costs of using your home’s facilities for the running of your business, including:

To calculate the running expenses of your home-based business, you must ensure that you exclude your private living costs and that you have records to show how you calculated the expense.

Occupancy expenses are those that you pay to own or rent your home, including:

Occupancy expenses are calculated based on the floor area of your home that is used for the business and the portion of the year that it was used.

Small business owners should note that capital gains tax (CGT) payments may be required when your home was used for business. However, CGT won’t apply if you operate your business from a rented home, didn’t have an area expressly set aside for your business activities or the business was run through a company or trust.

Records that need to be kept include written evidence, tax invoices and receipts, and should substantiate your claims for all home-based business expenses. This needs to be kept for at least 5 years to substantiate your claims.

Your business structure can affect the method you can use and the expenses you can claim, especially if your business is a company or trust. If you are a sole trader, a partnership or a company or trust, there are specific rules that may apply to you. Speaking with a trusted tax adviser is the best way to ensure you comply with those guidelines – why not start a chat with us today?

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Posted on 11 July '23, under Tax. No Comments.

Have You Taken The Time To Tax Plan This EOFY?

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As the financial year comes to a close, now is the time to visit your accountant or tax advisor to discuss tax planning for your business in 2023.

At the end of every financial year, business owners should be reviewing and measuring their performance in comparison to the previous year.

By regularly reviewing this information, a greater understanding of the basis for tax planning and budgeting can be determined more accurately. While tax planning is a process that should be continuously managed over the year for better and more adaptive results, it’s never too late to start.

This is especially relevant now as business owners need to understand the business’s current ability to move forward in the current economic circumstances and plan for the future. Otherwise, past mistakes could be repeated in the future.

Here are some general tax tips that business owners can take with them into the 2023-2024 financial year.

Timing Of Expenses

An expense is an allowable deduction that is necessarily incurred in carrying on a business or for the purpose of gaining or producing assessable income. Expenses should be recognised in the same period as the revenues to which they relate when it comes to lodging your tax.

Most prepayments that are made now are not deductible until the period to which they relate (though some exceptions may apply). Small businesses and individuals may be able to deduct 12 months of prepayments in the year paid, as an expense.

Payments to Workers

Deductions on payments to workers (whether they are employees, contractors, directors, etc.) can only be claimed when the business has complied with its PAYG withholding and reporting obligations.

Family businesses or businesses that employ family members should be especially concerned with preparing for this, as they have additional obligations to ensure that they are correctly paying the right amount of tax. If they have received wages or been given allowances below the tax-free threshold, they will need to be registered as a withholder and a PAYG summary provided.

Your business should already be in the position to process payments through Single Touch Payroll, as it was made mandatory for all businesses to use from 1 July 2021.

Bad Debts

Conduct a review of the debts that may be affecting your business. If any of these are unlikely to be recovered, the best course may be to write them off as ‘bad’ prior to the end of the financial year. You can speak with us about this process to ensure that it is performed correctly (and that you are able to do so). Writing off bad debts can reduce your income tax and generate a GST refund.

Bonuses

Businesses may have provided their staff with bonuses at the end of the calendar year for performance expectations being met or as a retention bonus. It is important to remember that bonuses are only deductible when they are actually incurred.

If you have concerns regarding your tax planning this year, why not speak with one of our trusted advisers? We have the knowledge and experience to assist you with your tax planning needs.

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Posted on 19 June '23, under Tax. No Comments.

Don’t Forget To Declare All Investment Income In Your Return!

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If you’ve made a major investment in the last financial year, any income made from it will need to be included on your tax return.

Any income earned from investments and asses must be declared in your tax return. This may include amounts from interest, dividends, rental income, managed investment trust credits, crypto assets and capital gains. Whether you receive it directly or via distributions for a partnership or a trust, this income needs to be declared.

If you, for example, hold the assets that earn the investment income jointly (with another person), it is assumed that the asset’s income is divided equally between you, unless it can be proven that the asset is held in unequal proportions.

Six items must be declared in your tax return as income this financial year, including the following:

Interest Income

Interest income includes:

Dividends

Dividend income may come from a:

Some dividends may have imputations or franking credits attached. The franked amount and the franking credit must be declared if you receive franking credits on your dividends. If a company pays or credits you with dividends that have been franked, you’ll generally claim a franking tax offset.

Rental Property Income

You must declare the full (gross) amount of any rent and rent-related payments you receive. This includes amounts you receive from overseas properties. You must work out and declare the monetary value if you receive goods and services instead of rent.

It’s best to consult with a tax adviser to avoid making mistakes involving rental property. This is usually a major red flag area for the ATO, so don’t hesitate to ask for help to avoid compliance issues or declaring for things you shouldn’t.

Managed Investment Trusts

You must show any income or credits you receive from any trust investment product in your tax return. This includes income or credits from a:

Crypto Asset Income

You must declare rewards received for staking crypto assets (often in the form of additional tokens from holding the original tokens. The money value of the additional tokens needs to be calculated and then converted into Australian dollars at the time they were received. These are reported in ‘other income’ in the tax return.

If you receive crypto via airdrop, this is income when you receive them based on the money value of the already established tokens. Occasionally, some crypto projects ‘airdrop’ new tokens to existing holders to increase the supply. Whatever amount is received needs to be converted into Australian dollars and declared as other income.

Capital Gains

Any capital gains that are made when you sell or dispose of capital assets must be declared. This may include investment property, shares or crypto assets. The capital gain is the difference between:

Report capital gains and capital losses in your tax return. You can offset any allowable capital losses against your capital gains to work out your net capital gain or loss. You pay tax on a net capital gain. If you have a net capital loss, you can retain the loss to offset capital gains in future years.

To avoid any issues with your tax return this financial year, especially involving investment-related income, start your tax journey with us today. We can help uncomplicate the process for you.

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Posted on 1 June '23, under Tax. No Comments.

The Instant Asset Write-Off Returns

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The Federal Budget has reintroduced the $20,000 Instant Asset Write Off to benefit small businesses amidst the myriad of measures announced by the government. 

The instant asset write-off will return for the 2023-24 financial year (1 July 2023 to 30 June 2024). If you buy an asset to use for business purposes and it costs less than $20,000, you can immediately deduct the business portion of the cost in your tax return. This deduction is available for each asset that costs less than $20,000.

Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use.

Instant asset write-off can be used for:

If you are a small business, you must apply the simplified depreciation rules to claim the instant asset write-off. It cannot be used for assets that are excluded from those rules.

The instant asset write-off eligibility criteria and threshold have changed over time. You need to check your business’s eligibility and apply the correct threshold amount depending on when the asset was purchased, first used or installed, ready for use.

Eligibility to use instant asset write-off on an asset generally depends on the following:

You are not eligible to use instant asset write-off on an asset if your aggregated turnover is $500 million or more.

The instant asset write-off does not apply for assets you start to hold and first use (or have installed ready for use) for a taxable purpose from 7:30pm (AEDT) on 6 October 2020 to 30 June 2023. You must immediately deduct the business portion of the asset’s cost under temporary full expensing. If temporary full expensing applies to the asset, you do not apply instant asset write-off.

The Temporary Full Expensing Measure Ceases 30 June 2023

Temporary full expensing was introduced to support businesses and encourage investment, as eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose.

The deadline for the expanded Temporary Full-Expensing measure has not been extended by the Federal Budget 2023-24, meaning that it will cease on 1 July 2023, and the write-off will revert to $1,000 from that date.

If you attempt to use the Temporary Full-Expensing measure after 1 July 2023 for an asset over $20,000, you cannot claim anything in the 2023-24 tax return using it.

Businesses will likely feel a cashflow impact, as they will now need to spread depreciation deductions for assets more than $20,000 out over a number of years rather than claim them back up front.

Looking towards the future and want to ensure you’re doing the right thing regarding your tax? Come start a conversation with us so we can assist you with your tax planning needs.

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Posted on 10 May '23, under Tax. No Comments.

PAYG Is A Good Thing! Don’t Freak Out (The ATO Is Not Stealing Your Money)

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As a taxpayer, you may have encountered the term pay-as-you-go (PAYG).

PAYG is generally a good thing, but there can be confusion between PAYG withholding and PAYG instalments, particularly if you’re an individual who is eligible for both. Both are amounts by which your tax bill can be offset at the end of the financial year.

So there’s no need to worry – the ATO is not stealing your money. Here’s how to distinguish between the two types of PAYG you may have encountered as a taxpayer.

PAYG Withholding

As an employer, you have a role in helping your payees meet their end-of-year tax liabilities. You do this by collecting pay-as-you-go (PAYG) withholding amounts from payments you make to:

This is to assist in minimising the impact of your employee’s tax bill at the end of the financial year. If you’re an employee, there’s no need to worry about this amount – it is what is used to work out how much tax you may owe or be owed by the Australian Taxation Office at the end of the year.

Payments other than income from employment may also need tax withheld, including:

PAYG Instalments

Pay-as-you-go (PAYG) instalments are regular tax prepayments on your business and investment income.

They’re a way to offset your tax bill by paying regular instalments at the end of the financial year. This way, you should not have a large tax bill when you lodge your tax returns.

If your financial situation has changed, your expected tax may also change. This means your current PAYG instalments may add up to more or less than your tax at the end of the year.

When Do You Have To Pay PAYG Instalments? 

If you are an individual (including a sole trader) or trust, you will automatically enter the PAYG instalments system if you have all of the following:

A company or super fund will automatically enter the PAYG instalments system if any of the following apply:

PAYG Varying Instalments

You can vary your PAYG instalments if you think your current payments will result in you paying too much or too little tax for the income year. Variations must be made on or before the payment due date (28 days after the end of each quarter, generally).

You do not have to vary your PAYG instalments at all. It will not change how much income tax you pay for the year.

After you lodge your tax return, if your instalments were:

Your varied amount will apply for all your remaining instalments unless you make another variation before the end of the income year.

You might need to vary your PAYG instalments if any disasters over the past financial year have impacted you.

If you cannot pay your instalment amount, you should still lodge your instalment notice and discuss a payment arrangement with the ATO. You may wish to obtain advice from a tax agent on whether you should vary your instalments.

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Posted on 17 April '23, under Tax. No Comments.

If I’ve Lost My TFN, What Can I Do?

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Your tax file number (TFN) is a critical piece of information in your possession and should be a constant companion throughout your life. However, there are times when a TFN is misplaced or forgotten. What are you supposed to do?

If you forget your TFN or lose it, this can be a significant issue.

A TFN can be used for opening bank accounts, tracking super savings, applying for government benefits, and giving to higher education providers. If a TFN is stolen, it can be used to create these accounts in your name, increasing the chances of identity theft.

It’s also required if you begin new employment, as you have 28 days to provide your new employer with your TFN before they start withholding tax from your pay at the maximum rate.

What Can You Do?

Your first avenue of inquiry, if you use the services of a tax agent or accountant, will be to ask them for your tax file number, as you will have previously provided it to them. If not, however, you can call the Australian Taxation Office (ATO) to find out what you can do to get your TFN.

The ATO will need to make certain you are who you say you are and that you’re the correct person to discuss your tax affairs with (identity theft can and does occur) – so be ready to answer a few identifying questions.

You may also (if you haven’t done so already) be invited to record a short “voiceprint”, which is another security layer that can identify you the next time you call. Another option is to fill in a form provided by the ATO to apply for or inquire about a TFN. But as the ATO will only process the paperwork it provides taxpayers, you will need to order an actual paper form.

Check The Document Trail

Before you grab the phone to track down your lost TFN, you should check other places it may have been entered into. You might want to rifle through your paperwork and check the following, as your TFN should be on them:

If you have a physical folder or file that you keep your important information in, make sure to check it as well.

What If Your Tax File Number Was Stolen?

If your TFN has been stolen or accessed by an unauthorised third party, inform the ATO as soon as possible. Your TFN can be used for identification purposes and may be used to steal your identity. The ATO’s Client Identity Support Centres can give you further information, advice and assistance to re-establish your identity. They may also apply security measures to monitor any suspicious activity on your account.

You can speak with your registered tax agent (like us) as we may have it on file and be able to assist you with locating it.

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Posted on 27 March '23, under Tax. No Comments.

New Work From Home Rules For Claiming Tax Deductions

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With a new norm surrounding how Australians work (hybrid, remote or office-based), there has been a change in how work-related expenses will be claimed this year during tax season.

Where once the expenses and claims that needed to be made during tax return season could be more clearly defined in terms of business or pleasure, work-related expenses or personal expenditure, remote working and work-from-home employees need to keep careful records of what they can and cannot claim as “home office expenses”.

Previously, this could be claimed through the COVID-simplified 80 cents per hour, work-from-home method (known as the shortcut method and no longer available for the 2022-23 financial year), the ‘fixed method’ (previously 52 cents per hour, now 67 cents per hour) and the ‘actual method’.

With new changes to the methods in place from 1 July 2022, it’s essential that work tax deductions are correctly calculated and claimed and the process is duly followed.

Shortcut Method Is No Longer Available

The shortcut method introduced to simplify the process of claiming work-from-home expenses during the pandemic is no longer available.

Through this method, individuals could claim a fixed rate of $0.80 per hour worked from home, with the aforementioned shortcut method covering expenses such as phone, internet, and depreciation on furniture & equipment. If this shortcut method was employed, no other costs could be claimed for working from home.

Remember that for the 2022-23 financial year, you must claim any work expenses through the fixed rate or actual methods, not the shortcut method.

Revised Fixed Rate Method

The fixed method will increase from 52 cents per hour to 67 cents per hour. The ‘actual method’ can also still be used. You no longer need a dedicated workspace at home, but you must have a representative four-week diary of the hours worked from home between 1 July 2022 to 28 February 2023.

Many taxpayers will already have kept records, but if you haven’t, one way to do this would be to look back over your diaries for the past four weeks.

You may also be able to use other similar records you already have as evidence as long as they represent the hours they worked from home during those eight months.

From 1 March 2023, the record-keeping requirement has changed again, and you will be required to record all your hours worked from home in a diary or some other format as they occur. This can be in the form of timesheets, diaries, time recording apps, or any other similar document, provided it is kept as they occur.

How Does The Fixed Rate Method Work? 

To use the revised fixed rate method, you must:

You can claim 67 cents per hour you work from home during the relevant income year. The rate includes the additional running expenses you incur for:

The rate per work hour (67 cents) includes the total deductible expenses for the above additional running expenses. You can’t claim an additional separate deduction for these expenses using this method.

Australians must know their entitlements and tax deductions when working from home/remotely.

Speak with us to ensure you comply with your tax return obligations when claiming or for assistance with your tax return this financial year.

Read more.

Posted on 13 March '23, under Tax. No Comments.

5 Tax Resolutions This Year You’ll Be Keeping

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Get a gym membership, start a diet, drink less, and travel more. Every year we make plenty of new year’s resolutions that we try valiantly to uphold.

Why not make one about keeping on top of your tax obligations in 2023?

Are You In Business? 

Know if you’re in business or not! Are you earning an increasing income from a hobby? You might already be in business for tax purposes. To work out if you’re in a business, identify all relevant, related activities you may be conducting already.

Examples of these can include:

Then, determine whether or not the activities are considered a business by answering the following questions.

The more of the following questions you answer yes to, the more likely it is your activities are a business:

Keep Business Details & Registrations Up To Date

If you’re the director of an Aussie company, you need to apply for a director ID. Keep your ABN details up to date as emergency services and government agencies use this information to support businesses during disasters. Also, if you’re going to earn over $75,000 this financial year, you’ll need to register for GST.

Keep Accurate And Complete Records

Good record-keeping helps you manage your business and its cash flow.

Do Personal Services Income (PSI) Rules Apply To You? 

PSI is income produced mainly (more than half) from your skills or efforts as an individual. If you’re earning PSI, you’ll need to work out if you’re a personal services business to determine whether the PSI rules apply to your income. The rules affect how you report your income and the deductions you can claim.

Take Care Of You AND Your Business

The last few years have thrown some curve balls at small businesses, so it’s good to be prepared. Consult with your advisers, take heed of the advice given and if necessary, look into grants and programs that can assist your endeavours.

We wish you all the best and hope you’re on track to thrive in 2023. When the fireworks have faded, know that we’re always available to support businesses just like yours.

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Posted on 13 February '23, under Tax. No Comments.

Uncomplicating The Tax Treatment Of Life Insurance

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Have you recently purchased life insurance?

The type of cover, deductibility of premiums and treatment of claims make life insurance a complex topic for tax. It’s a topic that individuals and businesses alike seek assistance from accountants.

The deductibility of premiums and treatment of claims payouts can be a complex, nuanced topic. The opportunities and traps hidden in those complexities are significantly amplified for professionals with higher incomes and greater-than-average wealth.

For professionals who want to structure their life insurance to optimise the balance between cash flow, tax treatment and robust protection, here’s a high-level look at the issues.

Tax Considerations – Cover Outside Super

While premiums for death, TPD (total or partial disability) and trauma cover are not tax-deductible outside of superannuation, premiums for income protection and business expenses protection are.

On the flip side of that, claims payments from death, TPD and trauma policies are entirely tax-free, regardless of whom they are paid to, while income protection and business expense benefits are classed as income and need to be declared (business expenses payments would naturally offset the actual expenses they are intended to cover).

Special Tax Treatment Of Policies Held For Business Purposes

Some tax concessions are available to life insurance policies held for business purposes, including buy/sell agreements and those covering revenue lost in the event of the death or disablement of a key person.

In such cases, policies are generally held by the business with premiums tax-deductible to the business. However, claim payments are generally regarded as income or a capital gain, depending on the purpose of the cover, and therefore subject to appropriate tax. FBT can also apply where a business pays ownership protection premiums on behalf of individual owners.

Tax On Life Claims Paid Through Super

Death benefits paid through super are generally tax-free if paid to a dependent (a term strictly defined under the law). Benefits paid to non-dependents may include a tax-free component but are likely to be subject to tax on at least some of the balance. Depending on the circumstances, the applicable rate will either be 15 or 30 per cent.

With TPD lump sum benefits, a portion is likely to be assessed as tax-free, depending on the member’s eligible service period. The remainder is subject to a tax rate that varies according to the member’s age.

Other tax-optimisation strategies include taking benefits as an income stream to qualify for tax offsets, maximising the uplift in the tax-free portion of the benefit, and washing out taxable components.

For more information about tax and life insurance, consultation with a tax professional (like us) is advised. This can be a very complicated topic to discern, with many intricacies that you may require assistance with.

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Posted on 23 January '23, under Tax. No Comments.

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