Benefits of Using a Tax Agent

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Filing your tax return can be a daunting task, and it can be difficult to decide whether to use a tax agent or to do it yourself. While some people prefer to file their own tax returns, there are several benefits to using a tax agent.

One of the primary benefits of using a tax agent is their expertise in tax law. Tax agents are qualified professionals who stay up to date with the latest changes to tax laws, deductions, and exemptions. They can use their knowledge to ensure that you receive all the deductions you’re entitled to and help you structure your finances to minimize your tax liability.

Using a tax agent can also save you time and reduce stress. Tax agents can complete and lodge your tax return on your behalf, freeing up your time to focus on other important matters. Additionally, they can ensure that your return is accurate, complete, and submitted on time, reducing the risk of penalties and interest charges.

Another benefit of using a tax agent is that they can provide ongoing tax advice throughout the year, which can help you make informed decisions about your finances.

However, there are also cons to doing your tax return yourself. One of the primary cons is the potential for errors or omissions. Filling out your tax return can be a complex and time-consuming process, and if you’re not familiar with the tax laws, you may miss deductions or credits that you’re entitled to.

Another con of doing your tax return yourself is the potential for audit or investigation. If the ATO suspects that your return is incorrect or fraudulent, they may investigate or audit your return, which can be a time-consuming and stressful process.

It’s important to note that the lodgement dates for tax returns can differ depending on whether you use a tax agent or do your tax return yourself. If you use a tax agent, the lodgement dates are generally extended, providing you with more time to prepare and lodge your tax return. The 2023 tax return lodgement dates for tax agents are:

  • 31 October 2023 – for individuals who are not in a tax agent’s client base
  • 15 May 2024 – for individuals who are in a tax agent’s client base

In conclusion, while it may be tempting to file your tax return yourself, there are numerous benefits to using a tax agent. Tax agents can provide expert advice, save you time, and potentially save you money. However, there are also potential cons to doing your tax return yourself, including errors or omissions, and the potential for audit or investigation. Ultimately, the decision on whether to use a tax agent or do your tax return yourself will depend on your individual circumstances and level of knowledge in tax law.

If you want to speak to a tax agent, please contact our office at 03 9973 5905.

Excess Concessional Contributions

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Individuals are allowed to make concessional contributions to their superannuation fund, which are taxed at a lower rate than their regular income. However, there are limits to how much can be contributed each financial year. If an individual exceeds this limit, they may be subject to an excess concessional contributions charge (ECCC).

The concessional contributions cap for the 2022-2023 financial year is $27,500. If an individual exceeds this cap, they will be required to pay additional tax on the excess amount at their marginal tax rate, in addition to the regular tax on concessional contributions.

The ECCC is designed to discourage individuals from using superannuation as a tax avoidance scheme, and to ensure that everyone is contributing to their superannuation fund in a fair and consistent manner.

If an individual exceeds the concessional contributions cap, they will receive a notice of assessment from the ATO outlining the amount of the excess contribution and the amount of the ECCC. The excess contribution can be withdrawn from the superannuation fund, although this may also be subject to additional tax.

It’s important to note that there are some circumstances where an individual may be able to avoid or reduce the ECCC, such as if they have unused concessional contributions from previous years or if they meet certain criteria for releasing excess contributions.

In summary, excess concessional contributions into super can have significant tax implications for individuals. It’s important to carefully monitor contributions to ensure that they remain within the concessional contributions cap.

If you require more assistance on this matter, please contact our office at 03 9973 5905.

 

 

Temporary Full Expensing

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The ATO introduced a tax incentive for businesses called temporary full expensing, which aimed to stimulate investment and help businesses recover from the economic impact of COVID-19.

Temporary full expensing allows businesses with an annual turnover of up to $5 billion to immediately deduct the full cost of eligible depreciable assets that are first used or installed between 7:30pm AEDT on 6 October 2020 and 30 June 2023. This means that businesses can claim the full cost of the asset as a tax deduction in the year of purchase, rather than claiming deductions over a number of years.

Eligible assets include new or second-hand assets, such as machinery, equipment, and vehicles. The assets must be used for income-producing purposes and be installed ready for use before the end of the 2022-2023 financial year.

Temporary full expensing applies to assets that were acquired after the announcement of the measure on 6 October 2020 and installed by 30 June 2023. Assets that were acquired before 6 October 2020 may still be eligible for instant asset write-off, which allows businesses to claim an immediate deduction for the cost of eligible assets valued at less than $150,000.

In conclusion, temporary full expensing is a valuable tax incentive for businesses, providing an opportunity to claim an immediate deduction for eligible depreciable assets. Businesses should consider taking advantage of the incentive to boost their cash flow and invest in their future growth.

If you need assistance on this matter, please contact our office at 03 9973 5905.

Entertainment Expenses for Businesses

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Entertainment expenses refer to costs incurred by a business for entertaining clients or staff members. According to the ATO, such expenses can be deductible, but only if they meet certain conditions.

To qualify as a deductible expense, entertainment costs must be directly related to the business and incurred while generating assessable income. Additionally, the expenses must not be lavish or extravagant.

Examples of deductible entertainment expenses may include business lunches or dinners, sporting events, and other social outings that are primarily focused on conducting business. However, expenses such as family outings, personal events, and entertainment unrelated to business are not deductible.

It’s worth noting that there are certain limitations to the deductibility of entertainment expenses. For instance, any costs incurred for providing entertainment to employees may be subject to fringe benefits tax (FBT). Similarly, expenses that exceed the entertainment limit of $300 per person may not be fully deductible.

Here’s an example to illustrate how entertainment expenses work in practice. A software development firm hosts an event to launch a new product, inviting its clients and staff members. The cost of the event is $10,000, and there were 50 attendees, including 20 clients. As per the Australian taxation law, the company can claim a deduction for the cost of the event, but it must apportion the expenses between business and private use.

The firm may only claim the costs relating to the 20 clients as a deductible expense, as this expenditure was incurred directly while generating assessable income. Additionally, the costs relating to the employees may be subject to FBT. The remaining expenses not meeting the conditions for deductibility may not be claimed as an expense on the company’s tax return.

In conclusion, businesses should ensure that they understand the rules surrounding entertainment expenses to avoid any potential issues with the ATO. If you are a business that incurs entertainment expenses and would like more information, please contact our office at 03 9973 5905.

How does Negative Gearing Work?

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Negative gearing is a popular investment strategy used by many individuals to reduce their taxable income. It involves borrowing money to invest in an asset that generates an income lower than the cost of owning and maintaining it. The most common asset types that people use negative gearing for include property, shares, and managed funds.

The ATO allows taxpayers to claim deductions for the expenses incurred in holding a negatively geared investment property, such as interest on the loan, council rates, and property management fees. These deductions can be offset against the rental income generated by the property, thereby reducing the taxable income and the amount of tax paid by the taxpayer.

However, negative gearing also has its risks. In the case of property investment, for example, investors may face difficulties in finding tenants, maintaining the property, or covering the mortgage repayments during periods of vacancy. Moreover, negative gearing relies on the expectation that the value of the asset will increase over time, allowing investors to sell the property for a profit in the future. This assumption is not always accurate, as property prices can fluctuate and may not always rise.

An example of negative gearing in action would be an investor who buys an investment property for $500,000, financed with a loan of $400,000. The investor earns $20,000 in rent for the year, but incurs $30,000 in expenses, including interest on the loan, property management fees, and repairs. The net loss for the year is therefore $10,000. This loss can be offset against the investor’s other income, such as salary, reducing their taxable income and the amount of tax they pay.

In summary, negative gearing can be a viable investment strategy for those seeking to reduce their taxable income, but it also carries risks and requires careful consideration of the costs and potential returns. If you would require more assistance on this matter, please contact our office at 03 9973 5905.

Employee Share Schemes

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Employee share schemes are becoming increasingly popular as a way for employers to incentivise and reward their employees. These schemes provide employees with an opportunity to own shares in the company they work for, giving them a vested interest in the company’s success.

There are different types of employee share schemes, including share acquisition plans, rights plans, and performance rights plans. Each scheme has its own tax implications, which employers and employees need to be aware of.

In a share acquisition plan, employees are offered the opportunity to purchase shares in the company at a discounted price. The difference between the discounted price and the market value of the shares is treated as taxable income for the employee.

In a rights plan, employees are given the right to purchase shares at a future date at a discounted price. Again, the difference between the discounted price and the market value of the shares is treated as taxable income for the employee.

In a performance rights plan, employees are granted the right to receive shares in the company if certain performance criteria are met. If the criteria are met, the value of the shares received is treated as taxable income for the employee.

Employee share schemes can be a valuable tool for employers to incentivise and reward their employees. They can also be a great way for employees to invest in the company they work for and benefit from its success.

However, it’s important for employers and employees to understand the tax implications of these schemes. If you require assistance on this matter, please contact our office at 03 9973 5905.

How Division 293 Works

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Division 293 was introduced to ensure that high-income earners pay an additional tax on their concessional superannuation contributions.

The threshold for Division 293 is $250,000 of income and concessional contributions. If an individual’s income and concessional contributions exceed this amount, they will be subject to an additional tax of 15% on the excess contributions, in addition to the 15% tax already paid by their superannuation fund. This means that their concessional contributions are effectively taxed at 30% instead of the standard 15%.

For example, let’s say John earns a salary of $300,000 per year and has concessional superannuation contributions of $30,000. His income and concessional contributions exceed the Division 293 threshold of $250,000, so he will be subject to an additional tax of 15% on the excess $30,000 in contributions. This means that he will have to pay an extra $4,500 in tax ($30,000 x 15%).

It is important to note that Division 293 only applies to concessional superannuation contributions, which include employer contributions and salary sacrifice contributions. It does not apply to non-concessional contributions or investment earnings within the superannuation fund.

Overall, Division 293 is a way for the government to ensure that high-income earners pay their fair share of tax on their superannuation contributions. While it may increase the tax burden for some individuals, it is an important measure to ensure the sustainability of the superannuation system for all individuals.

If you have questions on how Division 293 may affect you, please contact our office at 03 9973 5905.

Claiming Tax Deductions for Car Use

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If you use a car for work purposes, you may be able to claim deductions for the expenses related to the car.

To claim a car for work use, there are two methods: the logbook method and the cents per kilometre method.

The logbook method involves keeping a logbook to record your car’s business use and expenses for 12 consecutive weeks. This will determine the percentage of your car expenses that are deductible. The expenses that can be claimed include fuel, repairs and maintenance, insurance, registration, and depreciation. You can also claim the cost of any tools or equipment you have purchased for use in the car.

The cents per kilometre method involves claiming a set rate of 72 cents per kilometre (2022 financial year) for up to 5,000 business kilometres per year. This method does not require a logbook, but you must be able to demonstrate that the kilometres claimed were for business purposes.

It’s important to note that you cannot claim expenses related to commuting to and from work, as this is considered private use. However, if you travel directly from one work location to another, or if your home is your primary place of business, you may be able to claim car expenses.

Here’s an example: John is a sales representative who travels to meet clients and attend appointments. He keeps a logbook for 12 weeks and determines that 60% of his car use is for business purposes. He spends $10,000 on car expenses for the year, including fuel, repairs, and registration. John can claim a tax deduction of $6,000 (60% of $10,000) for his car expenses.

It’s important to keep accurate records of your car expenses and business use to ensure you can claim the correct amount and comply with the law. If you require more assistance on this matter, please contact our office at 03 9973 5905.

Carried Forward Concessional Contributions

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Carried forward concessional contributions can be a useful tool for individuals who want to boost their superannuation savings. Individuals can make concessional contributions up to a certain limit each financial year, with the current limit set at $27,500 for the 2021-22 financial year. Concessional contributions are taxed at a lower rate of 15% compared to an individual’s marginal tax rate.

However, if an individual does not use up their entire concessional contributions cap in a financial year, they can carry forward the unused amount for up to five years. This means that they can make additional concessional contributions in future years to catch up on any unused amounts from previous years.

For example, if John had a concessional contributions cap of $27,500 in the 2021-22 financial year but only made concessional contributions of $20,000, he could carry forward the remaining $7,500 and add it to his concessional contributions cap for the following year. If John makes concessional contributions of $35,000 in the 2022-23 financial year, he would have effectively used up his concessional contributions cap for both years ($20,000 + $27,500 + $7,500).

It’s important to note that there are eligibility requirements and restrictions around carried forward concessional contributions. Only individuals with a total superannuation balance of less than $500,000 at the end of the previous financial year are eligible to carry forward unused concessional contributions. Additionally, the unused amounts can only be carried forward for up to five years and must be used before they expire.

In conclusion, carried forward concessional contributions can be a useful strategy for individuals who want to boost their superannuation savings and take advantage of unused concessional contributions from previous years. If you require more assistance on this matter, please contact our office at 03 9973 5905.

Capital Gains Tax on Inherited Properties

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When a property is inherited, the recipient is considered to have acquired the property at market value at the time of the inheritance. If the recipient decides to sell the property in the future, they may be subject to capital gains tax.

Capital gains tax is calculated by subtracting the cost base of the inherited property from the sale price. The cost base includes the market value of the property at the time of inheritance, as well as any additional costs such as renovations, repairs, or improvements.

If the inherited property was rented out, there are additional factors to consider. If the property was generating rental income, the recipient may be subject to income tax on that rental income. Additionally, the rental income may affect the cost base of the property, as any expenses related to the rental property can be used to offset capital gains tax.

For example, let’s say John inherited a rental property from his father in 2010. At the time of inheritance, the property was valued at $500,000. John decided to rent out the property and has been receiving rental income of $20,000 per year.

In 2021, John decides to sell the property for $800,000. His cost base includes the market value of the property at the time of inheritance ($500,000), as well as any additional costs such as renovations ($50,000). His total cost base is $550,000.

The capital gain on the property is therefore $250,000 ($800,000 – $550,000). John will be subject to capital gains tax on this amount. He may also be subject to income tax on the rental income he received over the years.

It’s important to keep thorough records of any expenses related to the inherited property, as these can be used to offset capital gains tax. If you inherited a property and would like more assistance on this matter, please contact our office at 03 9973 5905.