Posted on November 27, 2018 by GSCPA Admin
Tip 1 – Take Advantage of the Instant Asset Write-Off
The ATO have once again extended the period in which the instant asset write-off threshold applies to now be 30 June 2019.
This means that if you qualify as a small business you may continue to deduct the full cost of an asset which is bought and used or installed and made ready to use costing less than $20,000. It does not matter if the asset is bought brand new or second-hand.
The entire cost of the asset must be less than the threshold amount which is irrespective of any trade-in amount. Depending if you are registered for GST or not will determine the amount paid on the asset.
For example, you purchase a new car for $19,500 exclusive of GST and trade in your current vehicle for $6,000. The GST portion of the car is $1,950.
Registered for GST – You do not include the GST portion in the amount paid as you will claim a credit for the GST on the relevant activity statement. This means the car is valued at $19,500 (we do not reduce the amount paid even though you traded in a vehicle) and as such the asset would be allowed to be claimed as an instant asset write-off.
Not Registered for GST – You include the GST portion in the amount paid. Even though you are only out of pocket $15,450 due to the $6,000 trade in, the car is valued at $21,450 and as such the asset would not be allowed to be claimed as an instant asset write-off.
You must also subtract any private use proportion before claiming the deduction. This is called the taxable purpose proportion. The entire cost of the asset must be less than the threshold however.
For example, a car is purchased at $30,000 and is used for 50% business use. Even though the business use value is $15,000 it is not allowed as an instant asset write-off as the cost was $30,000.
Tip 2 – Maximise Superannuation Contributions
You may contribute up to $25,000 for the 2019 financial year, although this is dependent on the type of concessional contribution being made and your age. If you have more than one fund, all concessional contributions to all funds are added together to determine if you have exceeded the $25,000 limit. This includes the compulsory contributions made by your employer.
Concessional contributions are only taxed at 15%, which is lower than any individual tax rate and are an allowed deduction in your tax return if paid by the member personally to their super fund.
You need to ensure the money is paid into the super fund by 30 June and must also complete a notice of intent to claim form to your super fund.
The disadvantage is that your money would be ‘locked away’ until retirement.
Tip 3 – Keeping Good Tax Records
You may claim deductions for certain expenses which are directly related to earning income. By keeping proper tax records, you may maximise the deductions you are entitled to. A big area for improvement in this regard is motor vehicle deductions as a lot of people don’t keep appropriate records and then fall short on the deduction they are entitled to.
When calculating motor vehicle deductions, you may use two methods; the cents per kilometre method or the logbook method.
Cents per Kilometre Method
You may claim a maximum of 5,000km at 0.68 cents per kilometre in the 2019 financial year. The total deduction allowed is $3,400. The benefit is you do not need written evidence to show how many kilometres you travelled, but you will still need to be able to substantiate your claim.
Logbook Method
You may claim the business use percentage of each car expense based on the logbook records. You must maintain a logbook for 12 continuous weeks which will be used to represent your travel over the income year. The logbook is valid for five years; however, you may start a new logbook at any time. You must record each trip, personal and business, to calculate the percentage of business use to personal use.
Regarding your expenses, you must maintain receipts for all your claim. By doing this, you are eligible to claim deductions for most of your motor vehicle expenses including but not limited to repairs and maintenance, insurance, registration, fuel & oil, depreciation of the motor vehicle, and interest. If the total cost of all your expenses for the business use portion of your motor vehicle is greater than $3,400, it would be beneficial to start a logbook to maximise the deductions you may claim, and for a lot of workers who use a vehicle for work, this is the case!
If you would like further information on any of the above tips, please contact our office.
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Posted on October 26, 2018 by GSCPA Admin
Exempt current pension income (ECPI) is the amount of income that is exempt from taxation inside an SMSF. An SMSF has exempt income if the SMSF has a pension or pensions that comply with the minimum pension standards each year. A fund can be 100% tax free if all members are in pension phase and the minimum pension/s for each member were withdrawn for the financial year that ECPI applies.
The tax exemption applies to all income (including capital gains) that is generated from the fund assets held to support retirement phase income streams. ECPI does not apply to non-arm’s length income a fund may receive or any concessional contributions.
For example, the Happy Days Superannuation Fund has two members both in pension phase in the 2018 financial year, no member has any accumulation balances and each member withdrew at least their minimum pension amount prior to 30 June 2018. The fund did not receive any non-arm’s length income so all income received on the fund’s assets throughout the year would be 100% tax free.
Importantly if at any time the pensions for which the ECPI has been granted do not comply with pension standards (by withdrawing the minimum pension amount required), the SMSF will lose its exempt current pension income which may apply to the full financial year.
It is important to remember that if an SMSF has an ECPI amount, that only the taxable percentage of expenses can be used to claim a tax deduction. For example, a SMSF has an actuarial percentage of 90%, the taxable proportion of the SMSF’s income is 10% and therefore only 10% of expenses can be deducted from the SMSF’s remaining income. If the SMSF is 100% tax free, no expenses can be claimed because there is no income for the expenses to be deducted from. Expenses cannot be banked or saved like capital losses. So in 100% pension phase expenses cannot reduce taxable income.
When an SMSF has both pension accounts and accumulation accounts running at the same time, an Actuarial Certificate is required to confirm the correct tax free percentage of the SMSF’s income.
The Actuarial Certificate will take into account the timing and amount of every contribution, pension payment and any member transfer.
A higher actuarial percentage will result in higher ECPI and less tax to pay.
The timing of contributions and pension payments throughout the year can have an effect on the level of exempt current pension income (ECPI) an SMSF can claim in a particular year.
For those that are eligible to make concessional or non-concessional contributions into super post retirement, the ECPI percentage is reduced the longer the period of time that contributions are held in a member’s accumulation account.
The actuary requires details on when members benefits are paid, whether they are pension payments or lump sums and whether these are paid from a member’s pension account or a member’s accumulation account.
For example: A SMSF with a sole member aged 63 years of age who has met a condition of release, has $1.6 million in pension phase and $400,000 in accumulation phase. The member is seeking to draw an annual income stream of $80,000 while the net earnings of the funds was 6 per cent per year. Note that the minimum pension requirements for someone aged under 65 years of age with $1.6m in pension is $64,000 ($1.6m x 4%)
If the member drew down his / her $80,000 income stream monthly by exhausting the minimum pension payment requirement first and then sourcing the rest of the payments from his / her accumulation account as lump sums, an estimated ECPI of 74.65 per cent would apply.
If however monthly income payments above the required 4 per cent minimum pension payments were made by lump sums from the accumulation account first, with the remaining payments subsequently made from the pension account, the ECPI increases to approximately 80.32 per cent because more money is retained in the pension account for a longer period and the accumulation account is reduced sooner.
If you are seeking to draw out more than the minimum pension required for a financial year, you need to have met a condition of release and ensure the funds deed and ATO compliance documentation is in place. Please speak to our Superannuation Manager Helen Cooper for more information.
Any information provided in this article is general in nature and does not take into account your personal objectives, situation or needs. The information is objectively ascertainable and was not intended to imply any recommendation or opinion about a financial product. This does not constitute financial produce advice under the Corporations Act 2001.
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