Posts Tagged ‘Tax News’

Last week we mentioned a few items that would assist in generating a tax deduction. This week we will look at a few specific areas.

The Education Tax Refund allows you to get back up to 50% of what you have spent (up to a certain amount) on your children’s text books, pens, pencils, etc, computer stationary, education computer programs, internet connection fees etc.  It is important that you retain all receipts for these books, , printer cartridges  etc.

Investment properties.  If you own a rental property there are many items that can be claimed as a tax deduction against the rental income. By the same token, there are a lot of expenses that cannot be claimed.

Items that can be claimed against the rental income include agent fees, insurance, council and water rates, some lawn maintenance, minor repairs, depreciation on items such as ceiling fans, floor coverings such as carpets, linoleum and floating timber, gas heaters, hot water systems (excluding piping), surround sound systems, ducted vacuum cleaning systems etc. If the property is rented furnished then there are many more items available for depreciation.

Items that are not tax deductible include major renovations such as a new kitchen or bathroom. Parts of the renovation may be allowable such as cook tops, dishwashers, freezers, ovens and range hoods but the cost of the cupboards and bench tops is not allowable.

When purchasing an investment property it is always advisable to consider the long term benefits/ detriments of such an acquisition. It may be purchased 99% in the name of the primary income earner so as to maximise the tax deduction but on sale can cost more in capital gains tax.  Talk to us about ways this may be used to your advantage.

If you are thinking of moving and want to keep your current home as an investment property, this can be done tax effectively if you talk to your accountant first.

Superannuation contributions can generate a tax refund in some instances. Contribute to your non working spouse’s super fund. A contribution of $3,000 may get you a $540 refund. A contribution of $1,000 can generate a co-contribution of $1,000 if you earn less than $31,920. This is money for nothing and can certainly help to put something aside for the grey years.

If you salary sacrifice to super you should ensure that your contribution does not exceed the maximum contribution allowable, otherwise you could be paying another 46.5% tax on that contribution.

The rules have changed again this year and any losses on rental income (negative gearing), salary sacrificed superannuation and interest on geared shares are to be added back to income to determine eligibility for various government payment such as Family Tax Benefit Part A or B.

This add-back also impacts on your ability to claim the superannuation co-contribution.

If you have any questions on any of this please send us an email to info@coulcher.com.au.

At this time of year we need to assess what we have done during the course of the past 12 months to see if there is any way we can generate a tax refund when we have our tax return prepared.

It is my belief that tax deductions are over rated. Why would you give someone $100 just so you could get a refund of $30 (or less).  The best thing to do about a tax deduction is to look at what you are spending and if you can turn that spend into a tax deduction then all the better.

Depending upon your occupation, you can claim such items as tools of trade, purchase and maintenance of protective clothing, cleaning of that protective clothing, union fees, membership of professional bodies, subscription to professional journals, education expenses related to maintaining job skills whereby the education may be a refresher course related to a specific part of the job. In my industry my staff and I attend regular tax schools whereby we are brought up to date on changes to tax rules, tax forms etc. It may be that you need to be aware of changes to occupational health & safety rules etc so you pay to attend updates on this subject. The cost of the course is tax deductible as is the cost of travel and if the course is in another city then the cost of overnight accommodation, if required, is also a tax deduction.

Other self education may be deductible if it is relevant to the earning of your wages and is relevant to your current duties. Education to get a promotion or another job is not tax deductible. The cost of uniforms is usually a tax deduction but if you work for a fashion shop and the boss expects you to buy clothes from that shop then the purchase of the clothes is not a tax deduction.

If you travel between job sites on a daily basis or the place of work changes from day to day or week to week then the cost of travel may be a tax deduction.  With any of the claims for travel you must ensure that you keep accurate records. If you use a motor vehicle then document the odometer reading at the start and finish of each journey. It is amazing how many people rip themselves off by not keeping accurate records. If you go to TAFE as an apprentice, log the distance travelled, this is a tax deduction. The trip from home to TAFE and return is a tax deduction. The distance will not vary so measure it once and you have that measurement for all time. Also with TAFE students, keep a record of what you spend on books, stationery etc. It all adds up.

More next week.

One of the most exciting parts of the Rudd/Swan 2010 budget was the promise to make lodgement of income tax returns easier.

The newspapers covered this in some detail without understanding what they were saying.

I refer to the Australian newspaper of 12^th May where they start their article by stating ‘Kevin Rudd’s budget pitch to working families centres on continued income tax cuts, reducing tax on bank interest and removing the angst and aggravation of completing the annual tax return”

Angst and aggravation? Lets get real. No comment has been made on the fact that you still need to lodge a tax return.

Now there are already millions of Australians who lodge their tax returns online, so this system may help. There are also millions of Australians who have no idea on how to turn on a computer let alone navigate around the various screens. This “NEW” tax system requires the taxpayer to lodge their return electronically that is via computer, talk about angst and aggravation.

Continuing on the same vein, this change, which comes into effect in 3 years, is what Wayne Swan termed the “tick & flick’ system of lodging a tax return. Once you get started you most certainly will want to give it the flick.

Again quoting from the Australian of 12^th May 2010 Wayne said “We have decided to provide taxpayers with the choice of a standard deduction instead of the hassle of shoe boxes full of receipts and the cost of professional assistance” – “This means less time with the Tax pack, more time with loved ones, and for 6.4 million Australians, it also means a bigger tax refund”

Excuse me!

Treasury anticipates that about 66% of those who opt in for 21012/13 will have a taxable income of less than $50,000, dropping to about 60% in 2103-14. Treasury said the change would deliver an average $192.00 in tax savings to taxpayers, amongst other benefits.

Well this has got me totally perplexed. How can a $500 tax deduction @ 31.5% tax generate an average tax refund of $192.00 when 31.5% of $500 is only $157.50, to this we can add back a bit of the low Income Rebate of about $25 we have $182.50 so where is the average $192.00.

Now let’s add some fact to the fiction put forward by Mr Swan, Mr Rudd and treasury. Are you in a union? Average union fees are more than $500.00 so you lose this. Do you buy tools of trade? Sorry these are out. Do you wear protective clothing or a uniform? Sorry purchase or laundry costs for these are out. Do you want your tax refund early, say the end of July. Sorry this can no longer happen. Do you have income protection insurance? This must cost more than $500.00. Another loss!

With the pre-filling report provided by the tax office, the ATO is at the mercy of the employer, who must, by law, forward copies of your group certificates to the ATO by 14^th August each year. The banks etc. will provide details of interest paid to you. Now if your employer does not notify the ATO  of your income details until 14^th August, then there is no way you can use the ATO system before that date.

Oh, and by the way, if the tax office makes a mistake and you use their system which does not include some income, then it is your fault. Penalties may apply to you for understating your income, so be careful.

What is the best solution? Utilise the services of experts, such as the staff at Coulcher’s Personal Accounting & Taxation Services in the heart of Camden.

Last week we looked at Tax Invoices and mentioned that some businesses that were not registered for GST were ripping off the public by adding GST to their invoice. There is no requirement to register for GST when you start a business. The requirement comes in when you expect your turnover to exceed $75,000 per annum. At this point you must register.

If you employ a handyman, painter, plumber etc to do a job around the home, and they quote an ABN and charge GST, you can check their GST registration by going to our website, selecting “useful links” and click on “check an ABN”. In the event they are not registered and you have paid, contact the ATO on 13 128 66 and dob them in.

In business, at times it is not practical for the supplier to create a tax invoice and the purchaser actually creates the invoice. This is known as a “Recipient Created Tax Invoice” or RCTI.

Recipient created tax invoices are usually issued where the purchaser determines the quantity purchased and the value of that purchase. This can occur with agricultural products where the value of what has been delivered has to be calculated, be it Wheat, Wool etc.. Similarly, the delivery of precious metal recycling whereby the value of the product being sold is determined by the purchaser. Coal mining is another example whereby the owner of the coal does not mine the coal but an international company would do that and pay for the coal as it is extracted, determining the amount of coal extracted and the price payable for that coal.

Not everyone can issue RCTIs with the Commissioner of Taxation determining that RCTIs may only be used in certain industries. These determinations are contained in a series of RCTI Determinations, which can be found at www.ato.gov.au and include, for example Road Transport, labour services and Financial Planning Services. It should be noted that many of the RCTI determinations contain further requirements and definitions that must be satisfied before the RCTI Determination can be relied upon.

For an RCTI to be issued there are several conditions that must be satisfied.

They include:

• both the supplier and recipient must be registered for GST
• the recipient must issue the tax invoice to the supplier within 28 days of determining the value of the taxable supply and the recipient and the supplier must have in place a written agreement in relation to the RCTI . This agreement must specify amongst other things, details of the supplies to which the agreement relates, that the recipient must issue tax invoices in respect of the specified supplies and that the supplier and recipient acknowledge that they are registered and will notify the other party if the registration ceases.

For the invoice to be valid, it must contain the same details as required for a tax invoice for more than $1,000 as discussed last week.

As we are all aware, every time we buy or sell something an invoice of sorts is produced, whether it be computer generated, hand written or produced by a cash register.

The introduction of the GST, some 10 years ago, meant that an invoice became more important especially if business wanted to claim back the GST paid for its purchases. This meant the introduction of “Tax Invoices”. A tax invoice is a particular type of invoice which contains specific items of information needed for the effective operation of the GST system.

Where a business is registered for GST and completes its monthly or quarterly BAS to settle its GST holdings with the ATO, the business can only claim an input tax credit if it holds a valid tax invoice. Where a business claims an input tax credit on the basis of a tax invoice that does not comply with ATO requirements they may be exposed to penalties in addition to being denied input tax credits.

The GST Act requires that tax invoices be in the approved form as set out in Section 388-50 in schedule 1 to the Taxation Administration Act 1953 (Cth) (TAA).

These requirements are:

For an invoice of more than $1,000 the tax invoice must state the words “tax invoice” prominently; the date of issue; the suppliers name and ABN; the name of the recipient; the address and ABN of the recipient;  a brief description of the item(s) supplied; for each description, the quantity of goods or the extent to which the service was supplied; the GST inclusive price of the item supplied and

–    if the GST payable is 1/11th of the total price the tax invoice must also state “the total price includes GAST” or the amount of GST

if the GST is payable is less than 1/11th of the total price, the tax invoice must state the amount payable (excluding GST) and the total amount of GST payable.

For an invoice of less than $1,000, the tax invoice must state the words “tax invoice” prominently; the date of issue; the suppliers name and ABN (this is important); a brief description of the item(s) supplied; the GST inclusive price of the item supplied and

–    if the GST payable is 1/11th of the total price the tax invoice must also state “the total price includes GST” or the amount of GST ;

if the GST is payable is less than 1/11th of the total price, the tax invoice must state the amount payable (excluding GST) and the total amount of GST payable.

This tells us that the requirements for an invoice of less than $1,000 are basically the same as for an invoice of more than $1,000 except it is not necessary to provide; the name of the recipient; the address or ABN of the recipient and the quantity of goods or the extent of the service supplied.

It is important to note that in order to claim the GST paid, a valid tax invoice must exist, and the person charging the GST must be registered for GST. Unfortunately there are a lot of businesses out there that charge GST, are not registered for GST and have effectively charged you an extra 10% for their services.

To check if the provider of the goods or services is actually registered for GST you can go to our website, select “Useful Links” and Check an ABN”.  By the way, you do not need a tax invoice for purchases of less than $75.00 which, in most cases is a receipt for fuel purchases.

Next week we will look at RCTI’s.