Archive for July, 2009

The Tax laws Amendment (Education Refund) Bill 2008 applies from 1 July 2008 and permits eligible taxpayers to claim a tax offset for certain education expenditure incurred in respect of children undertaking primary and secondary school studies.

This is not a tax deduction, it is a tax offset. A tax deduction means you do not pay tax on allowable expenditure. By including this expenditure as a deduction on your tax return, you get back the tax paid on that spend at your marginal rate, be it 15%, 30% etc. A tax offset means you get back 100% of what you spend. So at a marginal rate of 30%, a $100.00 deduction gives you $30.00 but a tax offset of $100.00 gives you a refund of $100.00. Now to see if you qualify.

In order to qualify for this refund a taxpayer must meet certain criteria and if that criteria is not met then no refund is available. Broadly speaking, the tax offset is available to taxpayers who are entitled to a Family Tax Benefit (FTB) Part A payment from Centrelink (or certain other prescribed payments) and have one or more children undertaking primary or secondary studies, or are independent students receiving allowances such as Austudy, Youth Allowance or payments under the Labour Market Programs. The payment is to the person receiving the FTB, not the spouse.

The schooling requirement is assessed for each half year in the tax year, ie from 1 July to 31 December and then again from 1 January to 30 June. Eligible taxpayers are able to claim a 50% tax offset in respect of eligible education expenses incurred during an income year up to $750.00 for each primary school student and $1,500 for each secondary school student.

This means that if you are eligible and spend $800 on a primary school student you can claim half of the maximum $750.00 which gives you a $375.00 tax refund. Likewise for a secondary school student if you spend $1,500 you can claim a $750.00 refund. I realise that this is not as clear a picture as could be painted but it is the best that can be achieved in less than 500 words.

The eligible expenditure, for which you should keep receipts includes: Computers; computer related equipment; computer software; home internet connection; school textbooks and stationery and prescribed tools of trade. Also included is the cost of repair to any of these items.
NON ELIGIBLE items are school fees, school uniforms, tutoring costs, sporting equipment, school subject levies or the cost of school excursions. I realize these seem to be the biggest expense items and this is probably why the tax office excluded these items.

One point of note is that if you spend more than the amount, for example a $2,000 computer for a secondary school student. You can claim half of $1,500 this year and half of the remaining $500 next tax year. However if the student is in year 12 and finished school in December then the claim is limited to half of $750.00 this year and nothing next year.

Taxpayers can claim deductions for work related expenses (WRE) incurred while performing their job. You can incur a work related expense when you receive a bill or invoice for an expense that you are liable for and must pay or you receive a good or service and pay for it. The fact that you have not yet paid for the goods does not stop you claiming a tax deduction in the year the debt was incurred.

The basic rules associated with work related expenses are: (a) you must have incurred the expense in the current tax year; (b) you cannot claim an expense that your employer (or any other person) has or will reimburse for you; (c) you must have incurred the expense in the course of earning your assessable income and (d) it must not be private, domestic or capital in nature. For example, travel to & from work each day is private expenditure.

You must have written evidence to prove your claims if your total claims exceed $300, the records you keep must prove the total amount, not just the amount over $300.

The $300 limit does not apply to claims for car, meal allowance, award transport payments allowance and travel allowance expenses. There are special written evidence rules for these claims which are explained on the ATO Website. If the amount you are claiming is less than $300.00 you need to be able to show how you arrived at that figure but you do not need written evidence ie receipts, bank statements, etc. The ATO advise that it is best if you retain all receipts so that in the event of you claiming more than the $300.00 you can justify the full claim.

Many taxpayers believe that they are entitled to a tax deduction of $300.00 whether or not they have actually spent anything.  This is totally wrong. The only tax deduction available is one whereby the taxpayer has actually incurred an expense or paid for one. Aligned with this is the fact that the expense must be related to the earning if income.

Generally, tax deductions for work related expenses are similar irrespective of the occupation undertaken, whether you are a building worker, teacher, truck driver, nurse, shop assistant or defence force member. No matter what the occupation, you may be able to claim for work related travel, protective clothing or uniforms, reference material, tools of trade, self education expenses and overtime meal allowances. I say ‘you may be able to’ because although you are required to spend money in order to work, the Tax Office does not see that spending as being an integral part of earning your income.

In the coming weeks we will look at specific deductions.

Well it was once upon a time, now under the simplified tax system, it’s “Pay As you Go Withholding Summary” time. You should all be receiving your PAYG withholding summaries over the next few weeks.

As you are aware, there are two parties involved at this time, the employer and employee. The employer has certain responsibilities as does the employee.

The employer MUST, repeat MUST give the employee a groupie (read Pay As you Go Withholding Summary) by the 14th July 2009.

If the employer does not do this, then the employee is within his/her rights to ring the ATO on 13 28 61 and complain.

The employer is also required to forward a copy of the Pay As you Go Withholding Summary to the ATO by 14th August. This allows the ATO to prefill tax returns with employment details.

The ATO also receives information from:

• The Banks, so they know how much interest you should declare,
• Listed companies, so they know how much you receive in dividends,
• Employment agencies, so they know how much you received as a contractor.
• Land Titles Office, so they know if you bought or sold a property. This is relevant when selling an investment property and not declaring the capital gain.
• RTA, this allows the ATO to know if you buy an expensive motor vehicle but declare a small income on your tax return, not that any one would do such a thing.

The employee, when they receive their Pay As you Go Withholding Summary, is required to prepare and lodge a tax return. This must be lodged by 31st October, UNLESS we do it for you, or you engage the services of another registered tax agent. We have a special dispensation to lodge your tax return as late as 5th June 2010. Not all tax agents have this right of deferral. In order to be allowed to lodge client tax returns after 31st October 2009, the tax agent must adhere to a lodgement program which details the percentage of client tax returns to be lodged each month. We ensure our lodgement program is met, thus allowing us to provide a better service to our clients.

If you have not lodged your 2008 tax return then your 2009 tax return is due by 31st October, even if you utilize the services of a tax agent. Any one who has not yet lodged their 2008 tax return is looking at the possibility of losing $900.00. The stimulus package finishes at close of business on 30th June 2009, so get cracking if you haven’t lodged that 2008 return.