Leenane Templeton – Newcastle Business Accountants, Business Advisors & Financial Planners

Author: Harlan Marriott

  • Unlocking the Secrets of Deductions: A Holiday Home Owners’ Essential Checklist

    Unlocking the Secrets of Deductions: A Holiday Home Owners’ Essential Checklist

    It’s essential for property owners to understand the intricacies of deductions associated with their cherished holiday retreats. However, as the holiday season approaches, they may find that their holiday retreats become a valuable source of income.

    To ensure you make the most of your potential deductions, it’s crucial to navigate the rules surrounding holiday home expenses and be aware of potential pitfalls.

    What Do You Need To Know?
    The primary rule is simple: you can only claim deductions for holiday home expenses if they are incurred with the aim of generating rental income. This means that any personal use of the property must be carefully considered to avoid discrepancies in deductions.

    One key consideration is whether the holiday home is used or reserved by you during peak periods when it could reasonably be rented out. Deductions should be adjusted accordingly during these periods to reflect the reduced potential for rental income.

    Likewise, if there are unreasonable conditions placed that hinder the likelihood of their property being rented, deductions should be reevaluated. This might include restrictive terms in advertising or setting rents significantly above market values.

    To help determine the validity of your claimed deductions, here are a few essential questions your tax agent might ask:

    Usage Duration
    How many days during the income year did your client use or block out the property for personal use? Deductions cannot be claimed for periods when the property was exclusively used or blocked out by the owner.

    Advertising Practices
    How and where is the property advertised for rent, and is the rent in line with market values? Obscure advertising methods or unreasonable restrictions in adverts may impact the eligibility for deductions.

    Property Condition
    Will any restrictions or the general condition of the property reduce interest from potential holidaymakers? If the property is not tenantable, deductions may be compromised, as it is less likely to generate income.

    Personal Use
    Have your clients, their family, or friends used the property? Deductions cannot be claimed for periods of private use or when the property is kept vacant for personal reasons.

    Tenant Accessibility
    Is any part of the property off-limits to tenants? When claiming deductions, ensure to calculate and apportion them based on the part of the property available for rent.

    By addressing these questions and ensuring that your claims are reasonable, you not only maximise your potential deductions but also reduce the likelihood of contact from regulatory authorities. Navigating these considerations thoughtfully helps level the playing field for holiday homeowners and ensures compliance with tax regulations.

    If you are unsure about how to handle your tax obligations when it comes to the holiday home, why not speak with a trusted tax expert? We’re here to help. Contact Leenane Templeton Today.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Unlocking Business Value: A Guide to Appraising Your Company’s Worth

    Unlocking Business Value: A Guide to Appraising Your Company’s Worth

    In the complex world of business transactions, accurately determining your company’s worth is not just a necessity but a strategic move, especially when contemplating a sale. Many business owners unfortunately overlook the importance of understanding their company’s monetary value. This guide aims to demystify the valuation process and highlight the factors that significantly influence your business’s market value.

    Understanding the Valuation Process

    Valuation is not a simple arithmetic exercise but a multifaceted evaluation that considers several critical aspects of your business. Enhancing these factors can notably increase your company’s sale price, potentially yielding a higher profit.

    Key Factors Influencing Valuation

    1 – Business Size and Scope: Size goes beyond the number of employees; it encompasses your client base and market presence. Larger companies might seem more stable and less risky, while smaller enterprises offer a unique appeal with their growth potential and manageable scale.

    2- Growth Prospects and Future Profitability: Assessing the growth trajectory of your business is crucial. This involves examining past growth patterns, current market trends, and the broader financial climate. A strong growth forecast can significantly boost your company’s appeal to buyers.

    3 – Customer Base Quality: The value of your business is greatly affected by the nature of your clientele. A solid base of reputable and financially significant clients is more valuable than a larger number of smaller, less stable customers.

    4 – Effective Cashflow Management: A key area of focus for potential buyers is your company’s profitability and cash flow stability. Ensuring that your financial records are meticulous and your financial operations are streamlined enhances the perceived value of your business.

    Seeking Professional Valuation Services

    For an accurate and comprehensive valuation, it’s advisable to engage valuation experts. These professionals offer an objective analysis based on industry standards, market conditions, and the unique attributes of your business, helping you navigate the complexities of the valuation process.

    Conclusion

    The journey to sell your business starts with a deep understanding of its value. By examining factors such as size, growth potential, customer quality, and financial health, you can showcase your business in its best light. Investing effort in enhancing its value and seeking professional valuation advice sets the stage for a successful and profitable sale.

    Disclaimer

    This document is intended for general informational purposes only. It is advisable to seek professional advice before acting on any of the information provided. Neither the publishers nor distributors bear responsibility for losses arising from actions taken based on this publication’s contents.

  • Changes For Nominating Your Tax Agent

    Changes For Nominating Your Tax Agent

    With more security and fraud-related scams targeting vulnerabilities and attempting to commit identity theft and fraud, the ATO has changed the process for how tax agents can access your information.

    From 13 November 2023, there’s a new process to nominate your tax agent, which anyone with an ABN will need to go through.

    A new requirement for those with ABNs, the agent nomination process has been implemented to ensure that only your authorised tax agent, BAS agent or payroll service will be able to access your accounts and act on your behalf for tax and super-related matters.

    This process only applies when you change an agent or change the authorisations you give your existing agent.

    Only when you’ve done this will your registered agent be able to connect to you as their client and access your information.

    Importantly, you can have confidence that only your nominated agent will:

    • have access to your information
    • perform tasks on your behalf, such as lodging your tax return.

    By completing the agent nomination process through online services:

    • your registered agent can be confident it’s truly you
    • The ATO can be confident that the actions your registered agent takes are truly on your behalf.

    The agent nomination process will apply to all types of entities with an ABN excluding sole traders. This includes entity types such as:

    • companies including strata title bodies
    • partnerships
    • trusts
    • not-for-profits
    • joint ventures
    • cooperatives
    • self-managed super funds (SMSFs)
    • APRA-regulated superannuation funds.

    The ATO had already rolled out the agent nomination process to the following:

    • Public and multinational businesses who are part of the Top 100 and Top 1,000 – effective from 19 June 2022.
    • Most public and multinational businesses – effective from 13 December 2022.
    • Businesses in our Top 500 privately-owned wealthy groups, where that group has a significant level of ownership – effective from 13 December 2022.
    • Government entities – effective from 24 February 2023.

    The new requirement does not currently apply to individual taxpayers or sole traders.

    What Do You Have To Do?

    You need to nominate your registered agent via the ATO’s Online services for business before they can access your account and act on your behalf.

    If you need support, you can contact the ATO or your Leenane Templeton registered tax agent. Please note, however that your registered agent can’t do the agent nomination process on your behalf in online services. However, they can help you understand what to do.

    Contact LT today.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • 5 Superannuation Misconceptions Australians Have…

    5 Superannuation Misconceptions Australians Have…

    Superannuation, often called ‘super,’ is a vital part of Australia’s financial landscape. It’s a retirement savings system that’s intended to provide financial security in your golden years. However, despite its widespread use and importance, there are several common misconceptions about superannuation that many Australians hold. Let’s shed light on some of these misconceptions and provide clarity on how super works.

    Misconception 1: “I don’t need to worry about my super; the government will take care of me.”
    One of the most widespread myths is that the government will cover your retirement expenses entirely. While the Age Pension does provide financial support to eligible retirees, it’s typically not enough to maintain the lifestyle you desire in retirement. Relying solely on the Age Pension can lead to financial stress.

    Superannuation is designed to complement the Age Pension and ensure you have enough savings to enjoy a comfortable retirement. So, it’s essential to actively manage your super and contribute to it regularly.

    Misconception 2: “I don’t need to think about super until I’m older.”
    Many Australians believe that super is something they can deal with when they’re closer to retirement age. However, this misconception can cost you dearly. The earlier you start contributing to your super, the more time your money has to grow through compound interest. Even small contributions in your younger years can significantly impact your retirement savings.

    Misconception 3: “Super is all the same; it doesn’t matter where I invest it.”
    Another common misunderstanding is that all super funds are equal. In reality, different super funds offer various investment options, fees, and performance outcomes. It’s crucial to choose a super fund that aligns with your financial goals, risk tolerance, and investment preferences. A well-considered choice can significantly affect the final amount you have in your super when you retire.

    Misconception 4: “I can access my super whenever I want.”
    Superannuation is a long-term investment designed to support you in retirement. However, some Australians believe they can access their super whenever they please. In most cases, you can only access your super once you reach your preservation age (which is currently between 55 and 60, depending on your birthdate) or meet specific conditions such as severe financial hardship or terminal illness.

    Misconception 5: “I don’t need to check my super statements; it’s all on autopilot.”
    Setting up your super contributions and investments and then forgetting about them is a risky approach. Superannuation is not a ‘set and forget’ asset; it requires regular monitoring. By reviewing your super statements, you can ensure your fund is performing well, fees are reasonable, and your investment strategy remains aligned with your financial objectives.

    Understanding superannuation is essential for all Australians. Dispelling these misconceptions and actively managing your super can lead to a more comfortable and secure retirement.

    Take the time to educate yourself about your super options, seek professional advice from Leenane Templeton specialist advisors if needed, and start contributing early to harness the full potential of your superannuation for a brighter retirement future.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Claiming Motor Vehicle Expenses On Your Tax Return

    Claiming Motor Vehicle Expenses On Your Tax Return

    As a business owner, one of the perks is the ability to claim tax deductions for expenses related to motor vehicles used in your business operations. This includes cars and certain other vehicles that play a role in running your business smoothly.

    The good news is that claiming motor vehicle expenses can help reduce your tax liability. Here at Leenane Templeton Chartered Accountants we help you to maximise your tax deductions. Let’s explore how you can make the most of this opportunity, particularly if you’re a sole trader or part of a partnership.

    • The Logbook Method: A Simple Way to Claim Tax Deductions

    Sole traders and those operating in partnerships can claim tax deductions for vehicles used in their businesses using the logbook method. It’s a relatively straightforward approach, but it does require diligent record-keeping of your vehicle-related expenses. The expenses you can claim when using your vehicle for business purposes typically include:
    • Fuel and oil
    • Repairs and servicing
    • Interest on a motor vehicle loan
    • Lease payments
    • Insurance cover premiums
    • Registration
    • Depreciation (decline in value)
    • Calculating Your Claim with the Logbook Method

    To make the most of the logbook method and ensure you’re accurately recording your expenses, consider enlisting the help of a registered tax agent. To work out the amount you can claim using this method, follow these steps:
    • Keep a logbook.
    • Calculate your business-use percentage by dividing the distance traveled for business purposes by the total distance traveled and then multiplying by 100.
    • Sum up your total car expenses for the income year.
    • Multiply your total car expenses by your business-use percentage.

    It’s vital to provide the Australian Tax Office (ATO) with evidence of the expenses you’re claiming. This means keeping records of:
    • An electronic or pre-printed logbook.
    • Evidence of actual fuel and oil costs or odometer readings used to estimate fuel and oil expenses.
    • Evidence of all other car-related costs.

    • The Crucial Logbook

    The logbook is a critical component of this claims method, and it should contain specific information, such as:
    • The start and end dates of the logbook period.
    • Odometer readings at the beginning and end of the logbook period.
    • The total number of kilometres travelled during the logbook period.
    • The number of kilometres for each journey, which can be recorded as a single journey if you make two or more trips in a row on the same day.
    • Odometer readings at the start and end of each subsequent income year for which your logbook is valid.
    • The business-use percentage for the logbook period.
    • Make, model, engine capacity, and registration number of the car.

    If this year marks the first time you’re using a logbook, remember that it should cover at least 12 continuous weeks during the income year and be representative of your travel patterns throughout the year.

    If you plan to use the logbook method for multiple vehicles, make sure that the logbook for each vehicle covers the same timeframe. The 12-week period you choose should be indicative of the business use for all vehicles. This ensures that you maintain consistency and don’t alter your driving patterns to fit the logbooks.

    Keep in mind that distinguishing between business and personal use is crucial for accurate claims. Generally, travel between your home and your place of business is considered private use unless you operate a home-based business, and the trip was for business purposes.

    In summary, claiming motor vehicle expenses for your business can be a valuable tax-saving strategy, but it requires careful documentation and adherence to ATO guidelines. With the logbook method, you can maximize your deductions while maintaining the integrity of your business and personal expenses. So, get started on keeping that logbook and consult a tax professional for expert guidance on your journey to tax savings.

    Speak with your LT Accountant today.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Do You Have A Goal For Your Business?

    Do You Have A Goal For Your Business?

    Have you ever wondered about the origin story of your business? What drove you to start it in the first place? It’s a question that we recently discussed in our morning meeting of how Leenane Templeton started. It’s a question that often gets overshadowed by the day-to-day hustle and bustle of entrepreneurship.

    Many entrepreneurs set out on their journey with the goal of building a better future, pursuing a passion, or gaining financial independence. More money, more free time, and more control over your work are often the driving forces behind starting a business. In an ideal world, you’d have it all – control, shorter work hours, more money, and the pursuit of your dream job. But, as many entrepreneurs can attest, the reality often doesn’t quite align with this picture-perfect scenario.

    In most cases, business owners find themselves working longer hours, struggling to maintain their income, and feeling like their business has taken control of their lives. Instead of answering to a single boss, they now answer to a multitude of customers, each with their own demands and expectations.

    Owning a business provides you with more control, but it also comes with increased responsibilities and obligations. The workload can be overwhelming, but it’s a part of the entrepreneurial journey. So, how can you navigate these challenges and ensure your business doesn’t become a burden?

    This is where consulting with a trusted Leenane Templeton adviser comes into play, after all we have been through this process ourselves and also with many of our clients. Our advisors can help you tackle seemingly impossible situations and give you choices, taking the fear out of the equation.

    Your business likely started as a dream, one that probably didn’t involve becoming a slave to your work or earning less than your previous job. It’s essential to reflect on your initial motivation and assess where your business currently stands.

    Take a moment to relax, reflect, and think about the direction you want your business to move in. What are your long-term goals? Once you have a general idea, it’s time to put some effort into planning how you’ll get there. Think about where you want your business to be in five or even ten years.

    As Benjamin Franklin once said, “If you fail to plan, you are planning to fail.” This timeless wisdom holds true for businesses as well. Regardless of your business’s stage, revisiting the planning process can be a valuable strategic tool. Every business needs regular planning to thrive. A well-documented business plan can significantly improve your chances of achieving your goals.

    Your business plan should outline your strategy for the next few years. It can be a tool for seeking financial support or simply a roadmap for your business’s growth. The plan should spell out your objectives and the necessary actions to take your business from its current state to where you envision it.

    Creating a business plan can help you focus, clarify your ideas, and identify priorities. It will give you a sense of direction and a benchmark to measure your progress.

    Don’t forget – while there are ideal times to prepare a plan for your business, it’s never too late to start. Consider developing not only twelve-month plans but five- and ten-year plans as well. If you need assistance with reviewing your business plans, don’t hesitate to consult with LT trusted business advisers who can guide you on your journey to success.

    Contact our team today.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • The Value of Establishing A Company Culture

    The Value of Establishing A Company Culture

    Company culture has become an important part of how businesses are perceived. Businesses with a positive culture are more likely to attract clients and customers.

    Statistics also show that over 50% of executives believe that having a good culture can influence productivity, creativity, profitability, firm value and growth rates.

    However, while describing and quantifying a company’s products and services can be easier, defining culture is a lot more complicated. It requires capturing the company environment, values and relationships.

    Identifying your company culture, or what you want it to be, will determine your work processes, hiring new people into your team, and how you and your employees interact with clients.

    The first thing to do is to identify key traits that describe your culture. Bring together a diverse group of people from across your company and brainstorm words and qualities that represent the culture. Collate the words you hear the most so that you end up with a list representative of the culture that employees most relate to.

    The next thing you need to do is distil this list down to the core values you can see in it. You can conduct surveys (if you have a large company) or talk to your employees (if the company is small) and ask them whether the values you have chosen resonate with them and if not, which ones do. At this point, you should aim to have around 5 values, but this is a flexible number.

    There are three main types of business values—principles, beliefs and standards of behaviour.

    You should identify the categories of values that are most suitable for your business. Common business value categories include:
    • business growth
    • customer service
    • decision-making
    • teamwork
    • leadership
    • staff
    • business culture
    • social community
    • environmental sustainability.

    Challenge your team to create impact values—these are values that outline the positive impact the business can have on other people and the environment. For example – if you are a company that deals in an area where safety is a major concern, an impact value could be to prioritise getting your people home safely.

    Next, draft your values. They shouldn’t be long, convoluted statements— 1 to 2 words or a short phrase is usually enough. You may need to briefly explain but avoid making the values too complicated. Simple, to-the-point values are more easily recalled by staff and embraced by customers and stakeholders.

    Last of all, once the core values have been established, share them throughout the company. Employees should relate to these values, and they should also feel motivated to embody them. Communicate with your employees why these values may or may not be working/suitable.

    The following tips could help you implement business values effectively.
    • Translate each value into a set of measurable action statements.
    • Include value and action statements with job descriptions
    • Clearly communicate and document job expectations for all staff (e.g. create specific key performance indicators around the business values).
    • Link job expectations to regular staff performance reviews.
    • Develop a communication plan for the values. It may be appropriate to create value statements or visual representations of the values and display them internally (e.g. on posters, screensavers or email signatures)
    • Include your values where appropriate in business proposals and capability statements, on your website and in other marketing activities
    • Develop staff induction programs with specific activities to practice and demonstrate the business values (e.g. a procedure for eco-friendly waste disposal or greeting customers respectfully).
    • Reward staff for demonstrating the business values.

    Remember that this is a process. You may not get it right the first time, so it is important to be receptive to feedback from all company members.

    Contact Leenane Templeton for business and acccounting advice.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Claiming The Small Business Technology Investment Boost

    Claiming The Small Business Technology Investment Boost

    Could your small business claim a 20% bonus deduction on technology expenditure that supports their digital operations or the digitisation of their operations?

    The small business technology investment boost is a broad measure and is intended to cover a wide range of business expenses and assets; however, questions may arise when you go to claim.

    Can I Claim The Boost?
    To access the small business technology investment boost, your business needs to meet the standard aggregated annual turnover rules (with an increased $50 million threshold).
    The expenditure must:

    • already be deductible for your business under taxation law
    • be incurred between 7:30 pm AEDT 29 March 2022 and 30 June 2023.

    If the expenditure is on a depreciating asset, the asset must be first used or installed ready for use for a taxable purpose by 30 June 2023.

    What Can I Claim With The Boost?
    A good indicator of eligibility is to consider if the small business would have incurred the expense if they didn’t operate digitally. That is if they hadn’t sought to adopt digital technologies in the running of their business. Using this rule of thumb, the costs below are eligible:

    • advice about digitising a business
    • leasing digital equipment
    • repairs and improvements to eligible assets that aren’t capital works.

    Eligible expenditure may include, but is not limited to, business expenditure on:

    • digital enabling items – computer and telecommunications hardware and equipment, software, internet costs, systems and services that form and facilitate the use of computer networks
    • digital media and marketing – audio and visual content that can be created, accessed, stored or viewed on digital devices, including web page design
    • e-commerce – goods or services supporting digitally ordered or platform-enabled online transactions, portable payment devices, digital inventory management, subscriptions to cloud-based services and advice on digital operations or digitising operations, such as advice about digital tools to support business continuity and growth
    • cyber security – cyber security systems, backup management and monitoring services.

    Whether some expenditure is eligible for the boost will depend on its purpose and its link to digitising the operations of the specific small business. For example, the cost of a multifunction printer would not be eligible if it were intended only to make copies of paper documents. However, it would be claimable if being used to convert paper documents for digital use and storage.

    New and ongoing subscription costs can also qualify as eligible expenditures if related to your client’s digital operations. For example, your ongoing subscription to an accounting software platform for your business would qualify. Likewise, a new subscription for digital content that is used in developing web content to advertise their business would be eligible.

    In these cases, you should keep explanations of how the expenses relate to digitising their business, as well as accurate records of all their claims.

    Where the expense is partly for private purposes, the bonus deduction can only be applied to the business-related portion.

    Special rules apply if claiming the bonus deduction for eligible expenditure on a depreciating asset.

    To avoid confusion or complications around the application of the small business technology investment boost, it may be best to speak to your trusted tax agent. We’re here to help.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • The Age Pension Thresholds Have Changed Since 1 July 2023…

    The Age Pension Thresholds Have Changed Since 1 July 2023…

    One of the most common questions from those entering or nearing retirement is, ‘How much money can I have before it affects my pension?’

    Our answer is usually derived from the total value of your savings, other assets and any income that might be earned from other sources. However, from 1 July 2023, the thresholds determining how much pension you may be paid have changed due to inflation-related adjustments.

    This means that many of those who may otherwise have been looking at a part-pensioner status due to being over the threshold may be able to be on a full pension with the adjusted thresholds (depending on their circumstances).

    Similarly, those who may have been ineligible for a pension due to being over the cut-off point for the assets test should become eligible to start claiming a part pension (and all the concessions that go with it).

    What Assets Will I Be Tested On?

    The assets that you or your partner own that are included in your assets test include the following:
    • Real estate (excluding your family home)
    • The market value of your household contents (such as fridges, appliances, etc).
    • Superannuation balances if you and your partner have reached the Age Pension eligibility age, including the balance of your pension accounts that provide you with an income stream. If your partner is below the Age Pension eligibility age, their super balances will not be included in your assets test
    • Other financial investments, like term deposits or any surrender value of life insurance policies
    • Retirement village contributions
    • Business assets
    • Motor vehicles
    • Boats
    • Caravans
    • Jewellery
    • Cryptocurrencies

    The Age Pension assets limits are adjusted three times a year based on movements in the consumer price index (CPI). The thresholds for the full Age Pension change in July, while thresholds for the part-Age Pension change in March and September.

    Assets Limit For A Full Age Pension

    To be eligible for either a full or part-Age pension, there are limits on the value of the assets you (and your partner combined) can own.

    The limits depend on whether you own your own home, as well as your living arrangements (including if you have a partner and whether they are age-eligible for the pension or not). The asset limits are higher for non-homeowners in recognition of the higher cost of housing for pensioners who rent their homes.

    You also need to pass the income test and age and residency requirements.

    The asset-free thresholds for full-age pension are the same for couples living together and those separated by illness.

    If the value of the assets is above the thresholds, you may still qualify for a part-Age Pension.

    The Income Test

    The new thresholds also increase the amount pensioners can earn before their pension starts to reduce under the income test. For a couple, the income test cut-off point rises from $336 a fortnight to $360 a fortnight – for singles, it increases from $190 a fortnight to $204 a fortnight.

    If you reach the threshold limits in the assets and income tests, your pension will be based on the lower amount.

    For example, if you are eligible for $400 per fortnight according to the assets test and $500 per fortnight under the income test, then the $400 per fortnight test will apply.

    Questions About The Pension

    If you have questions about your retirement plans, why not start a chat with one of LT’s trusted advisors? Contact Us

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Providing Affordable Housing? You Could Be Eligible For A CGT Discount

    Providing Affordable Housing? You Could Be Eligible For A CGT Discount

    An additional 10% capital gains tax (CGT) discount may be available when you sell an Australian residential rental property that you used to provide affordable housing.
    This will increase the potential maximum capital gains discount percentage on your sale from 50% to 60%.

    What Is Affordable Housing?
    For the affordable housing CGT discount purposes, affordable housing is any dwelling (house, unit or apartment) where the following conditions are satisfied:
    • The dwelling is both a taxable Australian real property (TARP) and residential premises that you rent out or genuinely make available for rent. Caravans, mobile homes and houseboats are not residential premises.
    • The dwelling is not a commercial residential premises.
    • Management of the tenancy or its occupancy is done exclusively by a registered community housing provider (CHP).
    • Each entity that holds an ownership interest in the dwelling has a certificate from the provider showing that the dwelling was used to provide affordable housing.
    • No entity that has an ownership interest in the dwelling is in receipt of an incentive from the National Rental Affordability Scheme (NRAS) for the NRAS year.
    • If a managed investment trust (MIT) has an ownership interest in the dwelling, the tenant does not have an interest in the MIT that passes the non-portfolio test.

    Eligibility For Affordable Housing CGT Discount
    When you sell a rental property used to provide affordable housing, you may make a capital gain on the profit. This may qualify you for an additional (up to 10%) affordable housing capital gain discount if you meet the following eligibility criteria:
    The capital gain must have been either
    • made by you as an Australian resident individual, or
    distributed or attributed to you either
    • directly from a trust or managed investment trust (MIT)
    • indirectly from a trust through an interposed partnership, MIT or other trusts (this does not include public unit trusts or super funds).

    You must have also provided:
    • new or existing affordable housing
    • rental rates below market rent
    • affordable housing to eligible tenants on low to moderate incomes (based on household income thresholds and household consumption)
    • Affordable housing for a minimum period of three years (1,095 days) from 1 January 2018. This can be continuous or an aggregation of three years over a longer period.

    The additional discount will be pro-rated for periods where you don’t use the property for affordable housing purposes or were a foreign or temporary resident for part of the time you owned the property.

    Investing In Affordable Housing Through a Trust
    You can invest in affordable housing through a trust.
    As an individual investor, only you can claim the additional affordable housing CGT discount. The trust cannot claim this discount.

    For you to qualify for the affordable housing CGT discount:
    • the trust can be a managed investment trust (MIT), but not a public unit trust or super fund
    • the trust must be entitled to the general CGT discount on the capital gain on the property, either in full or part.
    The capital gain can be distributed or attributed to you:
    • directly from the trust or MIT
    • indirectly from the trust or MIT through an interposed partnership, MIT or other trust, but not through a public unit trust or super fund.

    Consulting with one of our LT tax professionals could assist you in determining your eligibility for CGT discounts – why not speak with us today?

    Disclaimer :

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • What Is A Proprietary Limited Company?

    What Is A Proprietary Limited Company?

    In Australia, the Pty Ltd Company (proprietary limited company) is one of the most popular business structures chosen by entrepreneurs and business owners. Pty Ltd companies offer both distinct advantages and certain disadvantages that individuals should carefully consider when determining the most suitable structure for their enterprise.

    Benefits of a Pty Ltd Company:
    • Limited Liability: The most significant advantage of a Pty Ltd company is the limited liability it provides to its owners (shareholders). Shareholders’ personal assets are generally protected from business-related liabilities. This means that if the company encounters financial difficulties or legal issues, shareholders are only liable for the amount they have invested in the company.

    • Separate Legal Entity: Pty Ltd companies are considered separate legal entities, distinct from their owners. This separation allows the business to enter into contracts, own property, and engage in legal proceedings in its own name. It provides credibility and professionalism to the business.

    • Access to Capital: Pty Ltd companies can issue shares to raise capital, making it easier to attract investors or secure funding. Investors may be more inclined to invest in a company structure as opposed to sole proprietorships or partnerships due to the limited liability protection.

    • Perpetual Existence: A Pty Ltd company has perpetual existence, meaning it can continue to operate even if the ownership changes due to the death, sale, or transfer of shares of a shareholder. This stability can be appealing for long-term planning.

    • Tax Benefits: Pty Ltd companies often benefit from various tax advantages, including access to corporate tax rates, tax deductions for business expenses, and the ability to distribute profits to shareholders in a tax-efficient manner.

    Disadvantages of a Pty Ltd Company:

    • Complex Compliance: Pty Ltd companies are subject to stringent legal and regulatory compliance requirements in Australia. This includes the need to file annual financial reports, maintain records, and adhere to corporate governance standards. Complying with these obligations can be complex and time-consuming.

    • Costs: Establishing and operating a Pty Ltd company involves expenses such as registration fees, accounting fees, and ongoing compliance costs. These costs can be burdensome for small businesses or startups with limited resources.

    • Ownership Restrictions: Pty Ltd companies can have a limited number of shareholders (up to 50), and there are restrictions on transferring shares. This may limit the company’s ability to attract a broad range of investors.

    • Disclosure Requirements: Pty Ltd companies must disclose certain financial and operational information to the Australian Securities and Investments Commission (ASIC). This transparency requirement may not be appealing to business owners who prefer to keep their financial affairs private.

    • Complex Decision-Making: As Pty Ltd companies typically have multiple shareholders, decision-making can become complex, especially if there are disagreements among shareholders. Formal processes and agreements are often needed to address these issues.

    • Capital Raising Challenges: While Pty Ltd companies can issue shares to raise capital, attracting investors can be challenging, particularly for startups or smaller enterprises without a proven track record.

    In conclusion, the Pty Ltd Company structure offers numerous benefits, including limited liability, access to capital, and tax advantages. However, it also comes with disadvantages, such as complex compliance requirements, costs, and ownership restrictions.

    When choosing a business structure, entrepreneurs and new businesses should carefully assess their business goals, size, and long-term plans to determine whether a Pty Ltd company is the right fit for their needs or if an alternative structure may be more suitable.

    It’s advisable to seek legal and financial advice to make an informed decision. Why not start a conversation with a Leenane Templeton business advisor today to get on the right track?

    Contact LT to talk about the best business structure for your needs.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • What is a SMSF & How Does it Work?

    What is a SMSF & How Does it Work?

    A Self-Managed Super Fund (SMSF) is a unique and increasingly popular retirement savings vehicle in Australia.

    SMSFs offer individuals and families greater control, flexibility, and investment choices than traditional superannuation funds.

    In this article, we’ll explore what SMSFs are, how they work, their benefits, and some considerations for those interested in establishing and managing one.

    What is an SMSF?

    An SMSF is a type of superannuation fund that allows individuals to manage their own retirement savings.

    Unlike industry or retail super funds, where investment decisions are made by professional fund managers, an SMSF puts the control firmly in the hands of its members, who are also the trustees of the fund. This level of control is what sets SMSFs apart.

    How Does an SMSF Work?

    An SMSF can have a maximum of four members, all of whom must also be trustees or directors of the corporate trustee. As trustees, members are responsible for making investment decisions, complying with legal obligations, and managing the fund’s assets. SMSFs can invest in a wide range of assets, including shares, property, cash, and fixed income.

    Benefits of an SMSF:

    • Control and Flexibility: SMSF members have complete control over their investment choices and strategies. This allows for a highly tailored approach to meet specific financial goals and risk appetites.

    • Tax Efficiency: SMSFs offer potential tax advantages, particularly for those in retirement. Capital gains, for instance, are often taxed at a concessional rate if the assets are held for more than 12 months.

    • Estate Planning: SMSFs provide estate planning benefits, allowing members to dictate how their assets are distributed upon their passing. This can be especially important for complex family situations.

    • Asset Diversification: With greater control, SMSF members can diversify their investments across various asset classes, reducing risk and increasing the potential for returns.

    • Borrowing for Investments: Under certain conditions, SMSFs can borrow to invest in assets like property, which can magnify returns and portfolio diversification.

    Considerations for Establishing and Managing an SMSF:

    • Compliance: SMSFs must adhere to strict regulatory guidelines set by the Australian Taxation Office (ATO). Non-compliance can result in penalties or the loss of tax concessions.

    • Investment Knowledge: Managing an SMSF requires a strong understanding of financial markets, taxation rules, and investment strategies. It’s essential to keep abreast of changing regulations.

    • Costs: While SMSFs can be cost-effective for those with substantial assets, they may not be suitable for smaller balances due to administrative and compliance costs.

    • Time Commitment: Trustees need to invest time in managing their SMSF, including record-keeping, administrative tasks, and annual auditing requirements.

    • Professional Advice: It’s advisable to seek professional guidance from accountants, financial planners, or SMSF specialists

    Self-Managed Super Funds (SMSFs) have become a valuable retirement planning tool for many Australians, offering unparalleled control, flexibility, and investment options.

    However, the decision to establish and manage an SMSF should not be taken lightly. It requires a solid understanding of financial markets, compliance obligations, and a long-term commitment to effective management.

    When approached with diligence and professional guidance, an SMSF can be a powerful vehicle to achieve financial security and retirement success.

    For more SMSF information visit: https://leenanetempleton.com.au/self-managed-super-fund/

    Contact Leenane Templeton SMSF Specialist Advisers today. Contact Us

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • What Is The Tax Treatment Of Second-Hand Depreciating Assets In A Property?

    What Is The Tax Treatment Of Second-Hand Depreciating Assets In A Property?

    If you have a rental property, are you aware of the rules around claiming second-hand depreciating assets?

    Second-hand depreciating assets are depreciable items previously used or installed and ready for use in a rental property. These assets may have already existed in the property when clients purchased it, or were used in their private residence before renting it out.

    These assets may include:

    • flooring, window coverings
    • air conditioners, washing machines, alarm systems, spas, pool pumps
    • items used for both the rental property and your client’s own home.

    The rules around these assets regarding claiming deductions are precise.
    A deduction for the decline in value for assets in an existing residential rental property cannot be claimed if you entered into a contract to purchase that property on or after 7:30 pm (AEST) on 9 May 2017.

    If your home was turned into a residential rental property on or after 1 July 2017, you can’t claim a deduction for the decline in value for depreciating assets in your home.

    You may only claim a deduction for the decline in value for any new depreciating assets you purchase for your residential rental property.

    Exceptions
    You can claim a deduction for the decline in value of secondhand depreciating assets if any of the following apply:

    • You are carrying on a business of letting rental properties.
    • You purchased your residential rental property or a second-hand depreciating asset for your residential rental property before 7:30 pm (AEST) on 9 May 2017.
    • You used a depreciating asset that you acquired before 7:30 pm (AEST) on 9 May 2017, and then, before 1 July 2017, you installed it at your residential rental property.
    • Your rental property is not used to provide residential accommodation; for example, it is let out for commercial purposes (such as a doctor’s surgery).
    • The entity that owns the residential rental property is an excluded entity.
    • The income-generating activities at your rental property are unrelated to providing residential accommodation (for example, solar panels used in generating income from the sale of electricity).

    Claiming assets on your return can be a complicated business – why not make it easier with a consultation with your registered tax agent?

  • Why Should Your Business Engage An Adviser?

    Why Should Your Business Engage An Adviser?

    Feel like your business is stuck in a rut? Unable to solve a problem that you know is going to cost you in the long run? Struggling to navigate your way through a difficult time?

    It might not be financially tanking, and it might not be that your revenue stream is down; however, if you’re not sure what direction to take with your business, you might need a fresh set of eyes and a bit of extra guidance.

    A fresh pair of eyes to take a look at particular issues that your business is facing to deal with them doesn’t have to come from within the business. Sometimes, an outsider’s viewpoint or perspective can be even more informative.

    Business advisers can be engaged across many fields with specially focused advice or strategies to a specific area (such as accountants, business bankers or commercial lawyers) or be a business adviser who is dedicated to considering the overall goals and long-term ramifications of your business’s strategies.

    A business adviser can be hired on either a one-time basis (to deal with any one-off problems your business is set to face) or on an ongoing basis to provide continued support.

    If you are only looking for a particular solution to a particular problem, one-time advice from a business adviser can be an easy and cost-effective solution.

    However, if you’re looking for long-term ongoing support that’s backed by years of experience and a perspective that’s looking to preempt these issues, ongoing advice may be more appropriate for your needs.

    Engaging a business adviser can provide your business with fresh ideas based on an objective analysis of your business’s current performance and situation.

    Experts within their relevant fields are also able to provide you with specialised advice, based on the ongoing consultations you may have had with them previously or plan to have in the future.

    As an example, contracting an accountant in a business adviser role means that you are looking for strategic and financial advice like profitability improvement, tax planning and advice regarding business performance. These can be critical to ensuring your business’s longevity and preparing for whatever the future may throw at you.

    For example – if you were looking to sell your business, your contracted accountant should be able to map out the tax liabilities involved in doing so, the assets that would entail as part of the sale or even if you may be eligible for certain concessions.

    An adviser who can offer timely and relevant advice to your financial situation can make a huge difference to your business in the long run. They can also assist you in plotting out business goals, preparing for hardship, or even working out what to do in the event of bankruptcy.

    Looking for assistance in plotting out the financial future of your business, or for a tax specialist who can?

    We are more than ready for that conversation to be had with you. We’re well-equipped to assist you with mapping out your business’s plan for the future, so why not speak with LT and see how we can help you?

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Your Health Has A Place In Estate Planning: What you should consider if you fall ill

    Your Health Has A Place In Estate Planning: What you should consider if you fall ill

    When estate planning, most people focus on what will happen to their family and their assets after they pass, often neglecting to consider what would happen if they were to become ill or incapacitated.

    Falling ill can be a very stressful and traumatic time for you and your family, especially if you are the primary financial provider for your household. Taking the time to become prepared and evaluating your financial situation can help you to future proof if you are out of work for health reasons. It is essential to ensure you know of every entitlement available should you become sick or incapacitated.

    Income Protection:
    Income protection is a form of insurance that pays you a regular cash amount if you are unable to work as a result of a sudden illness, covering up to 75% of your income for a set period of time. You can insure your income through agreed value, where you decide the amount you wish to receive each month, or indemnity, where you prove your income at the time of claim rather than during application.

    Generally, you can claim part or all of your income protection insurance premiums that are taken outside of your super as a tax deduction, helping you save more on your tax bill. However, you are not entitled to deductions for a policy that compensates for a physical injury. Other insurance policies include health insurance, trauma cover or total and permanent disability (TPD) insurance.

    Incapacity plan:
    Incapacity planning is a process through which capable adults make choices and plans about future events that are a possibility. It addresses what you would want to happen in relation to health care decisions and financial matters should you lose your ability to make or express choices.

    In the event you are seriously injured or develop an illness such as dementia, you may not be able to pay bills, file taxes or manage your assets and investments. Incapacity planning allows for those types of things to still be done by someone with the authority to handle them. An incapacity plan should contain the following documents:

    • Living Will: states what kind of health care you wish to receive or refuse to receive, should you lose consciousness or capacity. Unlike a last will and testament, your living will has nothing to do with what happens to your property after you die.
    • Financial power of attorney: allows you to choose someone who will have the legal authority to manage your financial affairs if and when you lose the ability to do so yourself.
    • Medical power of attorney: allows you to choose someone to have the legal right to make medical choices on your behalf if you cannot make them on your own. You should discuss your wishes with the chosen representative before you are incapacitated and they need to make medical decisions.

    Early release of super:
    There are very limited circumstances in which you can access your super before you retire. You may apply for early release on the grounds of:

    • Incapacity: if you suffer permanent or temporary incapacity.
    • Severe financial hardship: if you have received Commonwealth benefits for 26 continuous weeks but are still unable to meet immediate living expenses.
    • Compassionate grounds: to pay for medical treatment if you are seriously ill.
    • Terminal medical condition: if you have a terminal illness or injury likely to result in death within 2 years, as certified by two registered medical practitioners, at least one of whom is a specialist

    Disclaimer :

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Doing A Final Tax Return For A Deceased Loved One

    Doing A Final Tax Return For A Deceased Loved One

    At the worst time of your life, the last thing you want to think about is tax. When a loved one dies, however, their affairs must be dealt with at some stage. This includes their tax obligations.

    You must lodge a date of death tax return if any of the following applied to the deceased person in the income year in which they died:
    • they had tax withheld from their income, including from interest or dividends
    • their taxable income was above the tax-free threshold
    • they lodged tax returns in the income years before their death, or had outstanding tax returns.

    To deal with a deceased loved one’s affairs, the help of a solicitor is highly recommended. Someone will be granted the role of executor or administrator of the estate of the deceased person (this is usually stipulated in a will).

    From a tax perspective, there are a few things that the executor or administrator has to do.
    The Australian Taxation Office (ATO) must be contacted and informed that your loved one has died. When you notify them of the death, they can tell you if the person had any outstanding tax returns for prior income years.

    All their financial documents must be compiled, and you must lodge a date of death (or final) tax return. This will only need to be lodged if your loved one had tax withheld from their income or had earned more than the tax-free threshold.

    This final tax return differs from a standard tax return as it doesn’t cover the full financial year – it only covers up to the day that the person died. The date of death tax return covers the period from 1 July of the income year in which the person died up to the date of death. All income and tax deductions until that day are inputted into the final tax return. This is different from a trust tax return for the deceased estate, which is for the period after the person dies.

    There are still tax obligations that can occur after that day, such as income earned from investments or the sale of assets that may or may not be subject to capital gains tax.

    In these circumstances, the executor or administrator of the estate will need to apply for a separate and new tax file number for the estate. The estate is treated as a separate taxpayer and will pay tax as if it was an adult individual resident taxpayer.

    This special treatment of the estate is received for up to three tax returns after the date of death (in fact, it is for two years from the date of death).

    We know that this time is very stressful, even without these additional obligations. The support of a tax professional during this process can ease the burden, as this is a role we are accustomed to taking. Contact us to find out how we can aid you, even if we weren’t the accountant for your loved one. We’re here to help.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Creating New Roles In Your Business? Here’s A Few Tips To Make It Easier…

    Creating New Roles In Your Business? Here’s A Few Tips To Make It Easier…

    As businesses grow, you will inevitably need to create new roles and hire new staff. Adding a new member to your team is always a challenging task, and when hiring someone to fill a brand-new position, there is even more pressure to make the right call.

    Business owners who are able to allocate workplace responsibilities in an efficient and logical way stand to reap significant benefits in the long run.

    The challenge is not just choosing the right person but also making sure that you have clearly defined the new role and established your expectations. You should spend some time thinking carefully about the skill set, experience and aptitude that you will require from your new employee.

    Even in times of high turnover, many owners are anxious about the financial commitment of taking on new staff members. While paying additional wages may seem like a gamble, failing to take on the extra labour you need will almost certainly damage your business.

    You and your current employees will have much more stress to deal with, and chances are that efficiency and quality may suffer down the line.

    In situations where you are worried about taking on a new staff member, it is important not to make the mistake of hiring an inexperienced person on the sole consideration that you are able to pay them a modest salary.

    You need to think very carefully about what your business needs today and what you may require from your team as you continue to expand.

    For example, as things get busier, you may find that you will need to devote more of your time to dealing with suppliers, and as a result, you will need someone you can trust to manage day-to-day matters at your store.

    Hiring new staff and defining their roles within your business is incredibly important to your future success. Staff are the most important asset that a business has, and the way that management has defined roles and responsibilities can have a significant impact on employees’ abilities to perform.

    Before you start recruiting a new staff member, you should write down all of the tasks that you would require a new employee to complete and the responsibilities that you may want them to take on in the future.

    Once you have written down everything, you can think of, take a step back and look at the list.

    At this point, you need to consider whether or not it is going to be in the business’s best interests to have a single person take on every task.

    You may realise that some of the tasks are suited to an entry-level position, whereas others require specific skills and experience.

    If this is the case, you should consider various options for restructuring the division of work between existing roles so that the new role will be suited to a specific type of candidate.

    There is also always the option of creating a part-time position, or even two part-time positions, instead of a full-time role as well, pending business budgets & expenses

    Many businesses will require extra help in busy periods such as the Christmas holidays. In cases where you are hiring someone for a specific time period, you should be upfront with them from the start and clearly explain the dates you have in mind.

    Hiring and creating a new role for your business requires careful planning, particularly around payroll, classifying the employee, or even integrating and onboarding them into the pre-existing structure. Speak with a professional business adviser if you are unsure about any of the procedures that you may need to put in place during the hiring process.

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • Superannuation-Related Obligations Employers Need To Keep In Mind

    Superannuation-Related Obligations Employers Need To Keep In Mind

    While the hustle and bustle of operating and managing a business can occupy your mind, it’s important not to forget your superannuation obligations to your employees.

    Those who fail to meet their super obligations risk facing severe and even damaging liabilities, penalties and even potential imprisonment. Are you aware of your obligations?

    Employees (after entering the workforce) should have a ‘stapled’ super fund that you must pay their super into or the right to nominate a super fund. However, if an employee is not eligible to choose, does not have a fund or fails to notify the employer, the employer must pay their contributions into an employer-nominated or default fund.

    The employer-nominated or default fund must be a complying fund (meets specific requirements and obligations under super law) and be registered by the Australian Prudential Regulation Authority (APRA) to offer a MySuper product.

    Some super funds may ask that an employer becomes a ‘participating employer’ before they can pay contributions to them. Participating employers may have to make super payments more frequently, such as monthly instead of quarterly.

    For example, you need to make sure that you are meeting the super guarantee contributions now for all of your employees, including those who would have previously fallen under the $450 threshold.

    Before 1 July 2022, employers who paid their workers $450 or more before tax in a calendar month had to pay superannuation on top of the employee’s wages. Now super must be paid on any payments you make to domestic or private workers if they work for you for more than 30 hours in a week, regardless of how much you pay them.

    The minimum amount of superannuation that an employer must pay to their staff in Australia is called the superannuation guarantee (SG).

    Under the superannuation guarantee, employers have to pay superannuation contributions of 11% (from 1 July 2023) of an employee’s ordinary time earnings when an employee is: over 18 years, or. under 18 years and works over 30 hours a week.

    Currently, it must be paid at minimum four times per year, but from 1 July 2026, employers will be required to pay their employees’ super at the same time as their salary and wages. This will be known as ‘payday super’, as more consistent contributions will mean that superannuation funds should be better able to increase their compounding potential.

    Employers can claim a tax deduction for super payments they make for employees in the financial year they make them. Contributions are considered paid when the employee’s super fund receives them.

    Missed payments may attract the SGC (superannuation guarantee charge). While the SGC is not tax-deductible, employers can use a late payment to reduce the charge or as a pre-payment of a future super contribution (for the same employee), which is tax-deductible

    Have concerns about your obligations as an employer when it comes to super? Why not have a chat with one of our team members, who may be equipped to assist you in this matter?

    Disclaimer for External Distribution Purposes:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

  • When It Comes To Tax, Is It A Business Or A Hobby?

    When It Comes To Tax, Is It A Business Or A Hobby?

    There are key differences between having a hobby and running a business, and they’re mostly to do with your tax, insurance and legal obligations.

    It’s important to understand the characteristics of businesses and hobbies to ensure you correctly determine your activities.

    Are You In Business?
    While there is no single, defining factor that determines whether or not you are in business, some of the factors that you still need to consider include:
    • You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term.
    • You’ve made a decision to start a business and have done something about it to operate in a businesslike manner, such as:
    • registered a business name
    • obtained an ABN.
    • You repeat similar types of activities.
    • The size or scale of your activity is consistent with other businesses in your industry.
    • Your activity is planned, organised and carried out in a businesslike manner. This may include:
    • keeping business records and account books
    • having a separate business bank account
    • operating from business premises
    • having licenses or qualifications
    • having a registered business name.

    The Benefits Of Running A Business
    If you run a business you can:
    • apply for an ABN to use in your business transactions
    • have the flexibility to manage your time and work your own hours
    • register a .com.au website or a .au website once you have an ABN
    • access to government information, services and concessions for business
    • establish a business identity when selling to customers and other businesses
    • claim tax deductions for business expenses against your taxable income.

    Is It A Hobby?
    A hobby is a pastime or leisure activity conducted in your spare time for recreation or pleasure. While you may create a business from the starting point of a hobby (such as crocheting or painting, etc), that is not the primary purpose of the hobby.

    The Benefits Of A Hobby
    Having a hobby allows you to:
    • gain personal enjoyment and satisfaction from the activity
    • gift or sell your work for the cost of materials
    • do it in your own time or when people contact you
    • have no reporting obligations of a business.

    What Are The Differences?
    The key differences between a business and a hobby are as follows:

    • Declaring Payments:
    You do not need to declare the amount made from your hobby to the ATO. However, you will need to declare your income to the ATO in your annual return as a business.

    • Claiming Tax Deductions:
    You cannot claim a deduction for any losses from your creative work if it is a hobby. As a business, you can claim for deductions on your expenses and generally need an ABN to do this.

    • Keeping Records:
    You do not need to keep records of your hobby for the ATO, however it’s good practice to keep records in case your circumstances change.You must keep records for your business for tax and other obligations.

    • Licences & Permits:
    Generally, you will not need to hold licences and permits for your hobby. However, you may need licences and permits specific to your type of business.

    • Australian Business Number (ABN) eligibility:
    As a hobby, you are not eligible for an ABN for a hobby, however if you sell goods or services to businesses, they may ask you for an ABN when they pay you. You can use a Statement by a supplier form to avoid the business withholding an amount from the payment to you for not having an ABN. The statement lets the business know that you are selling the goods or services as your hobby.

    As a business, it is not compulsory for businesses to register for an ABN, however getting an ABN is free and makes running your business easier, particularly if you have to register for other taxes like GST. Without an ABN, other businesses must withhold 47% from payments they make to you for tax purposes.

    • Selling Goods
    If you’re selling goods, you’ll need to comply with Australian Consumer Law (ACL). Your customers have automatic rights if they buy a product that breaks easily, doesn’t work or doesn’t perform as generally expected.

    If you are not certain about whether your activity would be classified as a business or hobby, you can seek professional advice from an accountant, legal expert or business adviser, who can help you determine what exactly it is that you’re running. Contact LT Today

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

    Image Credit: © 123RF Images

  • Maximising Your Tax Deductions As A Home-Based Business

    Maximising Your Tax Deductions As A Home-Based Business

    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 return.

    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, it can be difficult to ensure you are claiming expenses you are entitled to. How you operate the business out of your home will determine the types of expenses that may be claimed. Your business structure will also affect your entitlements and obligations when claiming deductions on home-based business expenses.

    There are generally three types of expenses that can be claimed, running expenses and 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 both occupancy expenses 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;
    • Repairs to your business equipment.
    • Heating, cooling and lighting a room.
    • Cleaning.
    • Phone and internet.
    • Depreciation of business furniture and equipment.

    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:
    • Mortgage interest or rent.
    • Land taxes.
    • Council rates.
    • Insurance premiums.

    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 for periods 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 specifically 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 make sure you’re in compliance with those guidelines – why not start a chat with Leenane Templeton today?

    Disclaimer:

    The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.

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