More than 8 million Australians claim work-related expenses each year. ATO assistant Commissioner Graham Whyte is reminding taxpayers to ensure they get things right when lodging 2015/2016 returns over the coming months. In 2014/2015 alone, the ATO conducted over 450 000 reviews and audits of individual taxpayers, resulting in revenue adjustments of more than $1 billion. Mr Whyte says:
Every tax return is scrutinised using increasingly sophisticated tools and data analytics. Consequently, we can identify and review income tax returns that may omit information or contain unreasonable deductions. When a ‘red flag’ is raised, our staff will investigate. If your claims seem unusual, we will check them with your employer.
The following Real Life Case Studies provide an insight into the ATO’s methods:
Case Study 1 – Car Expenses
A railway guard claimed $3700 in work-related car expenses for travel between his home and workplace. He indicated that this expense related to carrying bulky tools – including large instruction manuals and safety equipment. The employer advised that the equipment could be securely stored on their premises. The taxpayer’s car expense claims were therefore disallowed because the equipment could be stored at work and carrying them was his personal choice, not a requirement of his employer.
Case Study 2 – Travel Expenses
A medical professional made a claim for attending a conference in America and provided an invoice for the expense. When the ATO checked, they found that the taxpayer was still in Australia at the time of the conference. The claims were disallowed and the taxpayer received a substantial penalty.
TAX SCAM WARNING
The ATO has been warning taxpayers to beware of tax scammers. Now the Australian Competition and Consumer Commission (ACCC) have issued their own general warning in relation to new scams. Acting ACCC chairperson Delia Rickard warns:
Scammers will go to great lengths to slip under your radar, including impersonating ATO representatives on the phone, sending out fraudulent emails and even creating bogus websites. These fraudsters contact you out of the blue, claiming you have overpaid your tax and are now entitled to a refund. To obtain the refund, they may ask you to first pay an ‘administration’ or ‘transfer’ fee. They may also ask you for your financial details so they can transfer your ‘refund’ to you.
If you hand your money to these scammers, chances are you won’t see it again. If you accidentally give your personal details to a scammer, your bank account and identity could be at risk of fraud. $300 000 has been reported lost to all reclaim scams to the ACCC this year, and we have received 6000 complaints. Of these, 270 people reported the tax reclaim scam to the ACCC with over $10 000 lost.
The ACCC provides the following advice on how to protect yourself and your business:
- Never put your Tax File Number (TFN) on your resume. Provide it to your employer only after you have started your job
- Never share personal information, such as your TFN, myGov, or bank account details on social media
- Change any passwords you may have shared with family or friends
- Always keep your computer security up-to-date with anti-virus and anti-spyware software and a good firewall (and only buy software from a reputable source)
- Don’t open any attachments or click on any links or reply to suspicious emails, as they may take you to a bogus website or contain a harmful virus.
- If you use a tax agent, ensure they are registered by visiting: tpb.gov.au.onlineregister
- If you receive an email or phone call ‘out of the blue’ from the ATO claiming that you are entitled to a refund or asking you to confirm, update or disclose confidential details such as your TFN, press delete or just hang up
- If you are not certain whether an email or call is a scam, verify who the other party is by using official contact details to call them directly. Never use contact details provided by the caller or sender of an email. Find them through an independent source such as a phone book or online search
- If you think you may have provided your account details to a scammer, contact your bank or financial institution immediately
DIRECTOR REMUNERATION AND SUPER- ANNUATION
We have a small business set up as a company. My partner and I are the directors. We would both rather not pay super. The money could be far better spent in the business. Is there any way to get out of paying?
Types of Payment to a Director
At the outset, it’s worth noting that there are a variety of ways that a director or stakeholder of a company can receive remuneration including via “director’s fees”, director’s salary, fringe benefits, dividends, even as a contract style payment (in very unusual circumstances) etc.
All fees paid to a company director are earnings in respect of the director’s ordinary hours of work. As such, they attract Superannuation Guarantee (SG). Director SG payments must, as with payments to employees, be made to the nominated superannuation fund or a Superannuation Clearing House as the case may be. It’s against the law to make them directly to the director (irrespective of any written agreement in place between them and the company.)
As noted, drawing payments such as a salary from the company would attract SG and this cannot be avoided or contracted out of. To minimise the company’s SG obligations, you could discuss with your accountant the possibility of being remunerated solely by way of a dividend (such remuneration does not attract SG.) To this end, we note the government’s recently introduced small business restructure rollover which allows small business owners to change their operating structure without incurring CGT or income tax, subject to various conditions being met.
INSTANT ASSET WRITE-OFF
With a sunset date of 30 June 2017, small businesses may wish to start considering bringing forward any planned asset investments to the next few months – particularly in this current low interest-rate environment.
Up until 30 June 2017, Small Business Entities (SBE’s) can claim an immediate write-off for the acquisition of most depreciating assets used in their business if the asset cost less than $20 000. Being in its final year of operation the timing requirements around the instant asset write-off is important.
To claim a deduction in 2016/2017, the asset must first be acquired from 1 July 2016 and first used or installed ready for use in your business on or before 30 June 2017.
Assets acquired before 1 July 2016, but used or installed ready for use between 1 July 2016 and 30 June 2017 are also claimable in full in 2016/2017. If you miss the deadline (ie. if the asset is not being used in your business or installed ready for use on or before 30 June 2017) then the write-off threshold reverts to $1000. Missing the deadline will result in a worse cash-flow outcome for your business than if the deadline is met. The real benefit from the $20 000 write-off is an improvement to your cash -flow. The write-off improves small business cash-flow by bringing forward deductions rather than having them spread out over more than one year. Cash-flow can be a significant issue for small business, particularly start-ups.
That said, it is important to have perspective. You are only getting back the tax rate on the asset, not the full value of the asset. This is the same as the old law where the write-off was $1000 (which will apply from 1 July 2017). You don’t get any extra cash that you would otherwise have received under the old rules – you simply get it sooner.
Consequently, you should not let tax distort or blur your commercial instincts – as you don’t get any extra cash than you would otherwise have under the old rules, you should continue to only buy assets that fit within your business plan.
WORKING HOLIDAY MAKERS EMPLOYERS
The tax rates for working holiday makers on a 417 or 462 visa changed on 1 January 2017. They now pay 15% tax on all income up to $37,000 after which foreign resident tax rates apply.
If your clients employ these working holiday makers, advise them:
- they must register to use the new tax rate by 31 January
- to withhold tax at the new rate from 1 January
- they will need to issue two payment summaries for this financial year
- one for income earned up to 31 December 2016 (using code S)
- one for income earned from 1 January 2017 (using code H).
If they don’t register, they must withhold tax at 32.5% and penalties may apply for failing to register.
YOU’RE COMPULSIVELY DISTRACTED
Surfing the internet, answering a call, getting a snack, texting someone back quickly while you’re in the middle of something – it all pulls you away from intense focus. If you’re constantly interrupting yourself, you can’t get into the swing of things. You could be setting yourself up to waste your whole day.
Turn off your distractions, close your door and focus for a set period of time. If you need to call, text or eat, give yourself a set break to do so. And then have the discipline to return to the task at hand.