15 Dec 2016

Straight Numbers & Tax Talk for Business – December 2016

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AD Hamilton Christmas 2016In this Issue:

Now that we’re approaching the Christmas holidays and the new year 2017… how quickly did this come around?… It’s time for all of us to take a breather, take time out and regenerate, spend time with family and friends.

Before you take a break, though, why not reflect on your achievements of the last year and celebrate them with your family and others, who know how much this means to you.

It’s a powerful motivator when you see how much you’ve accomplished and it will be a good start for next year’s planning.

We wish you a great Christmas holiday season and safe travels, wherever you spend your break.

Catch you in the new year!
A D Hamilton & Associates

 

 

 

Christmas Holiday Business Closure

We are closing Friday, 23 December 2016 and will re-open for business on Tuesday, 3rd January 2017.

Survey for SMSFs using LRBAs

The ATO has announced that it will be contacting some SMSF trustees in November 2016 to participate in a survey about the use of ‘limited recourse borrowing arrangements’ (‘LRBAs’) to acquire assets for their SMSF.

The ATO will email a sample of SMSFs that reported LRBA assets on their 2015 SMSF annual return to invite them to participate in the survey.

Participation is voluntary, and they assure trustees that responses will remain anonymous and the information gathered from the survey will not be used for compliance purposes.

The ATO encourages any trustees contacted to participate (the survey should only take five to seven minutes), as their feedback will help it to gain a better understanding about the SMSF community’s use of LRBAs.

Editor: The ATO has also issued a new Practical Compliance Guideline and a new Taxation Determination regarding SMSFs that enter into non-commercial LRBAs with related parties (e.g., where a member lends money to their SMSF but does not charge interest).

If you would like to discuss any of these SMSF issues, please contact our office.

ATO warning for the building and construction industry

The ATO has reported that the building and construction industry represents a disproportionate amount of its debt book, and has identified worrying trends that affect the industry.

Clients in the industry are encouraged to contact their tax agents regarding outstanding debts, as the ATO may be able to offer a range of payment options to help them get back on track sooner and reduce any interest they may be liable for.

Clients that fail to pay, or make arrangements to pay, may have their outstanding tax debts recovered through a garnishee notice.

Renting out a room is rental income

The ATO has issued an information sheet to let taxpayers know that money earned from renting out a room in a house is rental income.

This applies to rooms rented by traditional means or through a sharing economy website or app.
Also, taxpayers can only claim expenses related to the part of the house they rent out (so expenses will need to be apportioned accordingly).

The following example illustrates how the ATO would expect rental deductions to be calculated.

Example: renting out part of a unit or house
Jane has a two-bedroom unit with two bathrooms. She lives alone and only uses her spare room as an occasional home office, for storage and when she has guests.

Jane mainly uses the ensuite bathroom. The second bathroom is accessible from the main areas and mainly used by visitors.

Jane decides to rent out the spare room on a sharing economy website to earn extra income.

When paying guests come to stay, Jane removes all excess items from the room and does not access the area.
She also gives paying guests access to common areas including the second bathroom, kitchen, living area and balcony, and to her wi-fi. For the period guests are staying and have access to these, Jane can claim 50% of associated costs.

Jane had the room available and occupied 150 days in the year. When she is not renting out the room she uses it as storage and a home office.

Claiming Rental Deductions
Jane calculates what she can claim based on the following additional factors:

  • The room is 10 square metres
  • The house is 80 square metres
  • The common areas are 50 square metres

She works out she can claim 17.97% of her general expenses (such as electricity, interest on her mortgage, internet expenses, rates and body corporate fees) after adding the following two calculations together:

room occupancy:
– (10/80 x 150/365) x 100 = 5.13%
common areas:
– ((50/80 x 150/365) x 50%) x 100 = 12.84%.

She can claim 100% of the expenses associated solely with renting out the room, such as the facilitator’s commission or administration fee.

Editor: Note that CGT may also apply if a property used to generate rental income is sold.

Crucial issue to consider when buying a company

Where a buyer commences to hold all of the shares in a company (including a company acting as trustee of a trust), they are highly likely to be appointed as a director of that company.

Although being a director in itself does not make the director personally liable for the debts of the company, there are two types of tax debts that are major exceptions to this rule, being PAYG withholding (‘PAYGW’) and compulsory employee superannuation guarantee (‘SG’).

That is, directors can be made personally liable for any outstanding PAYGW or SG, even if they were not a director at the time the debt was incurred.

Therefore, a key component of the due diligence process undertaken by a potential purchaser should be an assessment of whether the company is up-to-date with its PAYGW and SG obligations (as part of this, a potential buyer should also consider whether any ‘contractors’ to whom payments were made would be seen as ’employees’ in the eyes of the ATO).

The buyer will also ordinarily want the vendor to provide some kind of indemnity in relation to the buyer’s PAYGW and SG exposure.

Note also, however, that the ‘old’ directors do not cease to have exposure to unpaid PAYGW and SG. That is, both the ‘old’ and ‘new’ directors are all jointly and severally liable for these debts. This position does not alter even if a director resigns before the due date for payment of a relevant amount to the ATO.

Is Work/Life Balance the Key to Being Happy?

Many people believe that achieving a work/life balance and being able to find the even ground between achieving our career aspirations and maintaining relationships with those we love is the key to happiness. The good news is that there are a number of excellent tips that can set you on the right path to fulfilling this goal.

It is important to achieve a balance, but it is also important to recognize that that balance can be different for different people. You need to define your own understanding of the notion of balance based on your own priorities and what works for you and your own particular circumstances.

Another good tip is to have a conversation about these goals with those closest to you. You should never be afraid to discuss your aspirations and priorities. It is also a good idea to know your limits, setting your expectations at work and learning to say no.

Memorable Quotes…

“Change your thoughts and you change your world.”

Norman Vincent Peale – 1898-1993, Minister and Author

Superannuation changes passed by Parliament

Editor: The government’s extensive changes to the taxation laws regarding superannuation were passed by Parliament on 23 November 2016.

According to the Treasurer, Mr Scott Morrison:
“The superannuation reform package better targets tax concessions to make our superannuation system fair and sustainable, as the population ages and fiscal pressures increase.

“The reforms include the introduction of a $1.6 million transfer balance cap, which places a limit on the amount an individual can transfer into the tax-free earnings retirement phase and the introduction of the Low Income Superannuation Tax Offset”.

The amendments also include the following two new measures to provide more flexibility to help Australians save for their retirement:

  • the removal of the ‘10% rule’, allowing anyone (including employees) to claim a deduction for personal contributions into superannuation from 1 July 2017 (which will particularly help contractors who also draw income from salary and wages); and
  • the ability for individuals with superannuation balances below $500,000 to make ‘catch up’ concessional contributions from 1 July 2018 (allowing them to ‘tap into’ unused amounts of their contributions cap from prior years, which will help those with broken work patterns – the overwhelming number of whom are women – better save for their retirement).

FREE Tax Blaster Session

There are a number of ways that individuals and small business operators can legally slash their tax. We find that many of our clients only begin to realise after a chat with one of our professional tax agents how much tax they could have saved if they had taken action earlier.

Don’t delay it any longer and book in for your FREE 20-minute Tax Blaster session. We’ve got limited spaces avail-able for people who want to increase their earnings, save on taxes and put more money into their retirement fund.

Find out NOW how you could be making more money for your retirement and facing less financial stress now and in future.

Call our Team on 07 3399 8844 to book your FREE meeting NOW.

Elvis SmileyLaughter is the best medicine

No Slackers
The new CEO wanted to prove that he wouldn’t tolerate any slackers in his organization. On a tour of the plant on his first day, he noticed a man leaning against the wall while everyone else worked at a hectic pace.

“How much money do you make a week?” the CEO demanded. Surprised, the man answered, “About $500. How come?”

The CEO reached for his wallet and counted out $2,000. “Here’s four weeks’ severance pay. Now get out and don’t come back.”

Startled, the man quickly left. The CEO turned and asked the plant foreman, “What did that guy do around here?”
The foreman answered, “He delivered the pizza.”

Last chance for non-arm’s length related party LRBAs

The ATO has released a taxation determination regard-ing how it will apply the non-arm’s length income (‘NALI’) rules to income generated from assets pur-chased by an SMSF using a related party ‘limited re-course borrowing arrangement’ (or ‘LRBA’).

Although the ATO states that: “in some very limited cir-cumstances, the NALI provisions may not apply to an arrangement, even though it’s not on arm’s length terms”, in their opinion, for the vast majority of cases, if there is an LRBA that is not at an arm’s length terms, NALI will arise and the income may be taxed at the high-est marginal tax rate of 47%.

Editor: Importantly, the ATO has given SMSFs until 31 January 2017 to ‘get their house in order’. This means that all SMSFs with related party borrowings should re-view the terms of those borrowings by 31 January 2017
to consider whether they are ‘arm’s length’. Please contact this office if you would like any assistance in this regard.

FREE Copy of Our Book

In this book, Robert Bauman lays out 10 steps anybody can follow to become truly wealthy, and reveals ‘money myths’ and ‘inside secrets’.

Just contact us on 07 3399 8844 to claim your gift and we will send it out to you.

About Straight Money Talk—A Straightforward Plan for Financial Independence

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“Robert has done a fantastic job on this book. My views on how to handle money and how to educate my kids to learn the value of savings have totally changed now. This is an excellent book to guide you to creating great financial wealth in your life!”
– Keith Abraham CSP – Professional Speaker and Best Selling Author

 

Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.