Q & A – Taxation Spotlight

Q: What do all the new changes with the budget mean to depreciation and CGT concessions?

A. Small businesses can claim an immediate deduction for depreciable assets they start to use, or have installed ready for use, provided each asset costs less than $20,000 (GST excluded). This will temporarily replace the previous instant asset write-off threshold of $1,000. Qualifying assets must be acquired after 7.30pm from 12th of May 2015 until 30th June 2017.

The changes apply on a per asset basis, so several assets each costing less than $20,000 would qualify, along with new and second hand assets.

Excluded assets include:

• Horticultural plants – subject to their own ‘uniform capital allowance’ rules;
• Capital works – subject to their own ‘capital works’ depreciation rules;
• Assets allocated to a low-value pool or software development pool – subject to the deduction rates applicable under those rules;
• Primary production assets for which the entity has chosen to use the normal depreciation rules, rather than the simplified depreciation rules; and
• Assets leased out to another party on a depreciating asset lease.

Businesses need to ensure that they only claim a deduction in the year in which the asset is first used, or installed ready for use and to the extent to which the asset is used in an income earning capacity. If you are unsure, please check with our team for clarification.

Currently any business that meets the definition of a small business entity (SBE), that is one with an aggregated turnover of less than $2 million, may be eligible to claim an immediate deduction for the cost of depreciating assets acquired for less than $20,000.

In the 2016-17 Budget in May, the Government announced an increase to the SBE turnover threshold from $2 million to $10 million from 1 July 2016. However this change is not yet law and will be a matter for the Government to finalise in the coming weeks or months. We will keep you up to-date with any developments.

The increased turnover for SBE’s will not apply for when businesses look to access the capital gains tax concessions with the turnover threshold remaining at $2 million.

Q: Which areas are the ATO likely to put under the microscope in the coming year?

A – Uber Drivers

From August 2015 all Uber drivers are required to register for GST even if they earn less than the $75,000 threshold. It has been recommended that Uber drivers should be setting aside at least 30-40% of their income to cover the year-end tax bill.

Whilst Uber withholds a 20% commission at the end of each Uber trip, the driver still must declare the gross income including the 20% commission on their tax return. The ATO have determined that the 20% commission is not regarded an Australian taxable supply, therefore drivers cannot claim the Input tax Credits to offset their GST liability.

Below are a list of eligible deductions which can be claimed:

• 20% Uber commission
• Registration, including any Uber fees, medical or police checks
• Insurance
• Repairs
• Tyres
• Car maintenance
• Car cleaning
• Work-related parking expenses (keep receipts or claim up to $200 a year for parking charges less than $10 each)
• Special cleaning costs (car washes, carpet washes etc.)
• Mints and water for passengers
• Mobile phone costs (where they can be apportioned based upon Uber usage.)
• Relevant Spotify, Pandora or Apple subscription fees
• Stationery

It would be recommended to keep a valid logbook to track business kilometers when claiming motor vehicle expenses.

Uber driver activity is open to the public and easily accessible and the ATO will be focusing on these returns.

A – Air BNB

Depending on which state you are in within Australia, if you rent your property to someone else, you may need written consent from your landlord if you want to list it or part of it on Airbnb. When you rent a room through Airbnb, you are technically offering a short term sub-let agreement.  In some States this requires a tenancy agreement.

A confusing aspect of Airbnb is that regulations are evolving and can differ from State to State. Consider the risks involved before listing your property, or talk to your landlord or real estate agent first. You will also need to check your rental agreement or lease and Body Corporate laws if applicable to your property. The ATO can easily track your income, similar to Uber drivers so don’t under-report income.

Below are a list of eligible deductions which can be claimed:

• Internet and phone costs
• Water, power and council rates
• Upkeep and repairs
• Depreciation on the cost of furnishings and equipment
• Interest on your mortgage

Be aware that renting out a room in an owner occupied family home will trigger capital gains. The main residence 6 year exemption will apply however it is best to seek advice from your accountant to discuss your specific circumstances.

• Twitter
• Facebook

Non Commercial Loss Provisions

Have you ever heard a family member, colleague or business partner say that they are carrying out business activity like an olive farm or a hobby and that they claim the losses as a tax deduction? From 1 July, 2009 the Australian Taxation Office brought in Non-Commercial Loss legislation that further restricts the circumstances where a business loss can offset other income; most specifically for individuals whose adjusted taxable income is $250,000 or more.

To be eligible, you must meet the income requirement of adjusted taxable income of $250,000 or less and pass one of the four tests. You can only claim losses from genuine business activities.

Income requirement of $250,000.00 Attributable Taxable Income is made of the following amounts:

• taxable income (ignoring any business losses)
• total reportable fringe benefits amount
• reportable superannuation contributions
• total net investment loss (ie: negatively geared investment properties)

Once you meet the income requirement you must then pass one of the four tests.

The four tests are:

• The assessable income test – the business has assessable income of at least $20,000.
• The profits test – the business had a profit for tax purposes in three out of the past five years (including the current year).
• The real property test – the value of real property or of an interest in real property that is used in the business on a continuing basis was at least $500,000.
• The other assets test – the value of assets (excluding real property, cars, motor cycles and similar vehicles) used on a continuing basis in carrying on the business was at least $100,000.

If none of the above apply, then losses are deferred and carried over each financial year until a financial year where one of these tests are passed, meaning that they are never lost.

There are exceptions to these tests where losses can be claimed:

Primary Production & Professional Arts – If you have a primary production or professional arts business and your assessable income from other sources not related to that business is less than $40,000, you can claim the loss in that income year.

Commissioners Discretion – An application can be sent to the Commissioner of Taxation where the following applies:

• there are special circumstances outside your control that have prevented you passing one of the four tests, or
• because of the nature of the business, there is a lead time before your business can pass one of the four tests or make a profit.

Where the business activity is carried out in a partnership arrangement, then you (as an individual) may offset your share of a partnership loss against your other income, subject to the non-commercial loss rules. The non-commercial losses income requirements are applied to the individual partners the same as for an individual.

From looking at the Non Commercial Loss Provisions and 4 Business Tests we can see that simply running a hobby business to make a loss, does not mean a reduction in a taxpayers taxable income. With income requirements on your adjusted taxable income and quarantining of losses, accessing these losses can be rather difficult and should be discussed in detail with one of accountants. If you would like further clarification with what has been discussed above, please contact our office.

• Twitter
• Facebook