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August 2017 Tax Update

Purchasing property? You may be required to withhold tax from the purchase price.

New rules for foreign resident capital gains withholding (FRCGW) apply to vendors disposing of certain taxable property under contracts entered into from 1 July 2017. The changes will apply to disposals where the contract price for a property is $750,000 and above (previously $2 million) and the withholding tax rate will be 12.5% up from 10%. The previous threshold and rate will apply to any contracts entered into from 1 July 2016 but before 1 July 2017, even if they are not due to settle until after 1 July 2017. For vendors who are selling a property, to ensure that tax is not withheld on the property, you must apply for a tax clearance certificate prior to the settlement date.

Changes to deductions for personal superannuation contributions

Prior to 1 July 2017, for an individual who earned income from salary or wages were unable to claim a deduction for personal superannuation contributions if more than 10% of their income was from salary and wages. From 1 July 2017, this 10% rule has been scrapped which effectively means that most people under the age of 75 will be able to claim a tax deduction for personal super contributions.

Company Rates of Tax – 2016/17

A reduced corporate tax rate of 27.5% applies for the 2017 income year (which is a 1% reduction from 28.5% for the 2016 income year) to a company that is a Small Business Entity (SBE). In the  2017 income year, a company is an SBE if it carries on business and has an aggregated annual turnover of less than $10 million ( a increase from the $2 million threshold in place for the 2016 income year).

Your business has every right to arrange its financial affairs in order to minimise the tax you pay, and this process is called tax planning. But if you run a business that turns over more than $200-250,000 a year and you don't tax plan, you are at a major competitive disadvantage when compared to your more sophisticated rivals. Here's why:

How can you expect to effectively compete with businesses who are implementing superior tax planning strategies, ones that effectively leave them with more money to invest in finding new customers, or buying new technology that makes them more efficient?

In a competitive market, these kinds of initiatives make differences to critical issues like 'speed of turnaround', the quality of your work, the price of production and your capacity to market your products, in other words, all the critical points that determine your competitive position.

You have to pay tax, it can't be avoided. So doesn't it make sense to use better tax planning to arrange your financial affairs in a manner that is strategically advantageous, especially when it can mean the difference between your capacity to compete effectively with your fiercest competitors, or not?

There are two primary reasons why Businesses Fail to Tax Plan.

What we are revealing below is based on our experience gained from working with business clients for over 15 years. We have found that there are two primary reasons why businesses fail to tax plan.

1. Their accountants don't speak to them about it. In short, they don't get appropriate advice! (That's why we said it's not your fault in the title of this post). This should never happen, but unfortunately it does. You might be wondering, what circumstances cause this to happen? Sometimes this happens because…

2. When looking for an accountant, many businesses have the wrong mindset. If your one and only concern when looking for an accountant is to try and get your tax done as cheaply as possible, let me assure you, you will not find an accountant with the knowledge and experience necessary to  help you with proper tax planning.

What you will get is someone with the minimum amount of knowledge required to do your tax, who's only concern is to process your tax return as quickly as possible, most likely, after the event. Real tax planning will not even be a consideration.

Let's be crystal clear about this. Tax planning after the event is nonsense! How can you "plan" for something that has already passed?   It's really a tax post-mortem, not a tax plan, and the problem with it is that it leaves you with very few options.

There are literally hundreds of tax planning strategies you can implement prior to the end of the financial year, but there are only a few you can implement after it's ended!

The best time to start tax planning is well before the end of the financial year (between March and early June).

Tax Plans, they are as Different as Every Business.

Many business owners believe that business tax planning is a simple one size fits all thing. This could not be a more erroneous assumption. No two businesses are alike, even when they are in the same industry, and that means that although there are certain basic structures and strategies that may work for you in your current circumstances, the manner in which they are executed will be critical to maximising your tax position.

Here are some really simple strategies that are available. Which one would be best for you depends on whether your business is a sole trader, partnership, company, trust and/or if you are considered as a small business taxpayer under the relevant guidelines?

Simple tax strategies include:

-          Paying business expenses prior to the end of financial year

-          Purchasing assets that can be depreciated (most small business can claim an upfront deduction for assets costing less than $20,000)

-          Writing off any assets that are no longer used or have been disposed of.

-          Choosing the best method to value stock (stock on hand at the end of year is assessable)

Tax Planning How to Go About it

As mentioned, it's is important to ensure that you have your accountant prepare tax planning for your business well in advance the end of the financial year (between March and early June) and review your business needs in order to identify:

         Your current business structure, its deficiencies and the improvements and opportunities available, including options of making changes to your business structure based on the ever-changing taxation landscape.

        Your current profitability and significant business ratios

         Capitalising on expected tax breaks that are available and planning appropriately for future business expectations

         Looking at the implications of key tax liability issues, for example capital gains tax

We have found that the actions that can be taken in the course of just one day, from a tax planning perspective, can have lasting impacts on the tax position of your business for a number of years to come, and this can make a very significant difference to the competitive position of your business!

The Role of Forecasting & Business Planning

At Dendra we have developed a process of effectively and efficiently determining your most advantageous tax saving opportunities prior to the end of the financial year.

This process has two big advantages:

1.       Firstly, it enables us to calculate (with a high degree of certainty) how much tax you will need to pay for the year, so there are no unexpected surprises and you don't miss out on any tax savings that may be available to you,

2.       It also allows us to look at your choices and options and present them to you, in other words, we can make recommendations and if you see the sense in them, we can make adjustments to your financial situation prior to the end of the financial year.

Armed with this information, you'll have all you need to make the best decisions and as mentioned, this can have a significant bearing on your capacity to compete more effectively in your market.

Implications of Tax Planning on Your Choice of Accountant

Not planning your tax strategy prior to the end of the financial year is effectively not tax planning, it's a tax post mortem, and it leaves you with few options and can often throw up unpleasant surprises.

If the question you have been asking yourself when looking for an accountant is not "how can I get my tax done cheaper," you're asking the wrong question. You should be asking yourself, "is my accountant experienced and knowledgeable enough to help me maximise my financial and strategic position through proper tax planning." This is in fact why you have an accountant.

Where might your business be at the end of next year, or even more importantly, in five years, if you structure your tax in such a way that you are able to make the investments you know you should be making, but have been putting off because you think you can't afford them?  Proper tax planning often reveals that you actually can afford to make them, and this can turn out to be the competitive advantage that propels your business ahead.

If you would like independent expert advice on tax planning, contact Dendra.

Budget Update 2017-18

Welcome to our 2017-18 Budget summary. We have summarised all the relevant areas of the budget that apply to our business and investor clients along with a few other interesting areas of the budget.

Overseas investors have been very heavily impacted and the most surprising part of the budget is the increase in the property settlement tax by 2.5% to 12.5% but also the reduction of the threshold to $750,000. This means that an overseas investor will need to pay tax on a purchase of any property that exceeds $750,000.

The Government has also dealt the first blow to the much talked about negative gearing on investment properties. As their first step, deductions for travel to inspecting rental properties or collecting rent will cease. Based on recent history, with the removal of other offsets and deductions, you can expect further reductions in other areas in the future.

For Business

$20k immediate deduction extended for another year

Date of effect

Extended until 30 June 2018

 
The $20,000 immediate deduction threshold for assets purchased by businesses with an aggregated turnover of under $10 million will be extended.

Assets costing $20,000* or more can be allocated to a pool and depreciated at a rate of 15% in the first year and 30% for each year thereafter. If the closing balance of the pool, adjusted for current year depreciation deductions (ie, these are added back), is less than $20,000 at 30 June 2018 then the remaining pool balance can be written off as well.

The instant asset write-off only applies to certain depreciable assets.  There are some assets, like horticultural plants, capital works (building construction costs etc.), assets leased to another party on a depreciating asset lease, etc., that don't qualify.

The current 'lock out' laws for the simplified depreciation rules (these prevent small businesses from re-entering the simplified depreciation regime for five years if they opt out) will continue to be suspended until 30 June 2018.

From 1 July 2018, the immediate deductibility threshold will revert back to $1,000.

* $20,000 exclusive of GST for GST registered businesses.  $20,000 inclusive of GST for businesses not registered for GST.

Contractors in the courier and cleaning industries face greater compliance

Date of effect

1 July 2018

The building industry has faced enhanced compliance and reporting for some time through the taxable payments reporting system. Now it's the turn of contractors in the courier and cleaning industry.

Businesses in these industries will need to collect information from 1 July 2018, with the first annual report required to be lodged in August 2019. 

Under the taxable payments reporting system, businesses are required to report payments they make to contractors (individual and total for the year) to the ATO. 

Who collects the GST on residential property & subdivisions

Date of effect

1 July 2018

Under new integrity measures, property developers will no longer manage the GST on sales of newly constructed residential properties or new subdivisions.  Instead, the Government will require purchasers to remit the GST directly to the ATO as part of the settlement process.

It seems that under current law (where the GST is included in the purchase price and the developer remits the GST to the ATO), some developers are failing to remit the GST to the ATO despite having claimed GST credits on their construction costs.

The Government expects that as most purchasers use conveyancing services to complete their purchase, they should experience minimal practical impact from these changes.

The practical effect for developers is that they will not have the GST they would have collected to assist with cashflow between the period between settlement and when they would normally remit it to the ATO.

Many new residential properties and subdivided lots are sold under the GST margin scheme which allows the developer to calculate the GST based on the difference between their purchase price and sale price rather than GST applying to the full sale proceeds. It is not clear how this will work under the proposed new rules and whether the purchaser will be able to rely on calculations performed by the developer to meet their obligations with the ATO.

Small business CGT concessions tightened

Date of effect

1 July 2017

 

The small business CGT concessions will be tightened to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business.

The Government is concerned that some taxpayers are accessing the concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million. The higher small business entity turnover threshold of $10 million will not apply to these concessions. 

Levy on businesses employing foreign workers on skilled visa

Date of effect

March 2018

 

Businesses that employ foreign workers on certain skilled visas will pay a new levy that will be channelled into the Skilling Australians Fund.  The new levies replace and increase the existing training benchmark financial obligations, generating an estimated $1.2 billion over 4 years.

For businesses with a turnover less than $10 million p.a.

Businesses with turnover of less than $10 million per year will make an upfront payment of $1,200 per visa per year for each employee on a Temporary Skill Shortage visa and make a one off payment of $3,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

For businesses with a turnover of $10 million or more p.a.

Businesses with turnover of $10 million or more per year will be required to make an upfront payment of $1,800 per visa year for each employee on a Temporary Skill Shortage visa and make a one off payment of $5,000 for each employee being sponsored for a permanent Employer Nomination Scheme (subclass 186) visa or a permanent Regional Sponsored Migration Scheme (subclass 187) visa.

Small business CGT concessions tightened

Date of effect

1 July 2017

 

The small business CGT (Capital Gains Tax) concessions will be tightened to ensure that the concessions can only be accessed in relation to assets used in a small business or ownership interests in a small business. 

The Government is concerned that some taxpayers are accessing the concessions for assets which are unrelated to their small business, for instance through arranging their affairs so that their ownership interests in larger businesses do not count towards the tests for determining eligibility for the concessions.

The small business CGT concessions will continue to be available to small business taxpayers with aggregated turnover of less than $2 million or business assets less than $6 million. The higher small business entity turnover threshold of $10 million will not apply to these concessions.

Encouraging over 65's to downsize

Date of effect

1 July 2018

 

If you are 65 or over, the Government will allow you to make a non-concessional contribution of up to $300,000 from the proceeds of selling your home from 1 July 2018.

This non-concessional contribution will be excluded from the existing age test, work test, and the $1.6 million balance threshold (but will not be exempt from the $1.6m transfer balance cap).

Interestingly, the Government is enabling "both members of a couple" to take advantage of the concession for the same home.  So, if you have joint ownership of the property and meet the other criteria, both people can make a non-concessional contribution up to $300,000 ($600,000 per couple).

The measure will apply to sales of a principal residence owned for the past ten or more years.

Sale proceeds contributed to superannuation under this measure will count towards the Age Pension assets test.

First home owners to use super contributions to save for a deposit

Date of effect

1 July 2017 - contributions

1 July 2018 – withdrawals

 

Under the First Home Super Savers Scheme, would-be first home owners will be able to withdraw voluntary contributions they make to super for a deposit.  In practice, first home buyers will be able to save for a deposit by salary sacrificing into their superannuation fund over and above their normal compulsory superannuation contributions.

If the individual is self-employed or their employer will not allow contributions to be salary sacrificed the Government will allow these people to claim a deduction for voluntary contributions made under the scheme.

The Government will allow future voluntary contributions to superannuation made by first home buyers from 1 July 2017 to be withdrawn for a first home deposit, along with associated deemed earnings. The earnings that can be released will be calculated using a deemed rate of return based on the 90-day Bank Bill rate plus 3 percentage points (the same way the Shortfall Interest Charge is calculated).

Concessional contributions and earnings that are withdrawn will be taxed at marginal rates less a 30% offset. Combined with the existing concessional tax treatment of contributions and earnings, this is intended to provide an incentive that will enable first home buyers to build savings more quickly for a home deposit. In reality, the benefits of using the scheme could be relatively small for those on low income levels as salary sacrificing arrangements and additional deductions tend to be much more beneficial for those on higher incomes.

Under the measure, up to $15,000 per year and $30,000 in total can be contributed within existing caps. Withdrawals will be allowed from 1 July 2018 onwards. Both members of a couple can take advantage of this measure to buy their first home together.

It will be interesting to see how popular this scheme is with first home buyers. Some individuals may be wary of contributing additional funds into superannuation especially if they are not absolutely confident that they will be able to save a deposit for a home in the near future.

Deductibility of investment property travel costs to end

Date of effect

From 1 July 2017


The days of writing-off the costs of travel to and from your residential investment property are about to end.  The Government has moved to disallow deductions for travel expenses related to inspecting, maintaining or collecting rent for a residential rental property.

Depreciation deductions limited

Date of effect

From 1 July 2017

Grandfathering from 7:30pm, 9 May 2017

 

The Government is concerned that some plant and equipment items in residential rental properties are being depreciated by successive investors in excess of their actual value. This measure will limit plant and equipment depreciation deductions to outlays actually incurred by residential rental property owners

Acquisitions of existing plant and equipment items will be reflected in the cost base for CGT purposes for subsequent investors. 

Investors who directly purchase plant and equipment for their residential investment property after 9 May 2017 will be able to claim depreciation deductions over the effective life of the asset. However, subsequent owners of a property will be unable to claim deductions for plant and equipment purchased by a previous owner of that property. The portion of the purchase price that reflects the value of these items will simply form part of the cost base of the property and will reduce capital gains made on future disposal of the property.

These changes apply on a prospective basis, with existing investments grandfathered. Plant and equipment forming part of residential investment properties at 9 May 2017 (including contracts already entered into) will continue to give rise to deductions for depreciation until either the investor no longer owns the asset, or the asset reaches the end of its effective life.

Plant and equipment items are usually mechanical fixtures or those that can be 'easily' removed from a property such as dishwashers and ceiling fans.

Foreign investors charged for leaving properties vacant

Date of effect

From 7:30PM (AEST) on 9 May 2017

Foreign owners of residential Australian property will incur a charge if their property is not occupied or genuinely available on the rental market for at least 6 months per year.

The charge will be levied annually and will be equivalent to the relevant foreign investment application fee imposed on the property at the time it was acquired by the foreign investor.  The charge imposed is expected to be at least $5,000.

This measure will apply to foreign persons who make a foreign investment application for residential property from the Budget announcement, 7:30PM (AEST) on 9 May 2017. This suggests that the new rules do not appear to apply to existing properties.

Foreign resident CGT withholding rate increased and threshold reduced

Date of effect

From 1 July 2017

 

When someone buys Australian real property (ie, land and buildings) they are currently required to remit 10% of the purchase price directly to the ATO as part of the settlement process unless the vendor provides a certificate from the ATO indicating that they are an Australian resident. These rules do not currently apply if the property is worth less than $2 million however that is about to change.

From 1 July 2017 the CGT withholding rate under these rules will increase by 2.5% to 12.5%.

Also, the CGT withholding threshold for foreign tax residents will reduce from $2 million to $750,000, capturing a much wider pool of taxpayers and property transactions.

Foreign ownership in new dwellings restricted

Date of effect

From 7:30PM (AEST) on 9 May 2017

 

The cap will be a condition of New Dwelling Exemption Certificates from the night of the Budget announcement (7:30PM (AEST) on 9 May 2017).  New Dwelling Exemption Certificates are granted to property developers and act as a pre-approval allowing the sale of new dwellings in a specified development to foreign persons without each foreign purchaser seeking their own foreign investment approval. The current certificates do not limit the amount of sales that may be made to foreign purchasers.

Is your business an Audit Target

In today's business world many business owners face constant enquiries from ATO and other government organisations seeking to have their records reviewed. As no business owner invariably wants to be audited, circumstance might flag a reason for a review, such as a disgruntled employee pursuing his or her unpaid superannuation payments. At Dendra we have no reason to suspect you the client will be subject to an audit but, with increasing audit activity, it is more likely than ever that your business could be flagged for a tax audit or review by the ATO or other government body. At Dendra every client is encouraged to have Audit Insurance as a safeguard, should the situation ever arise.

Daily we observe articles in social media that the ATO, in particular, continue to announce significant increases in their audit activity. More recently than ever, Individuals, Businesses and Self-Managed Superannuation Funds are at risk of being selected for a tax audit or review. With the ATO's enhanced data-matching capabilities especially through the Standard Business Reporting (SBR) government website it is able to seek a wider scope to target both businesses and individuals. SBR is a standard approach to online or digital record-keeping that was introduced by government in 2010 to simplify business reporting obligations.

Dendra's partnership with Accountancy Insurance, enables us to offer clients an 'Audit Shield' Insurance policy with very competitive premiums. We allow clients to group all of their entities together under one policy (which is often much cheaper than insuring each entity with an individual policy).

In this current economic client of constant audit review this is one area of protection, individuals and small business should consider as the compliance costs can be somewhat daunting when an unexpected audit review is received.

Dendra is constantly looking at challenging the limits of financial performance (its primary vision for all its clients) by providing value, and the benefits that many business advisors have little knowledge or time to execute for their business clients.

Please feel free to give us a call on this matter and how it may benefit you or your business.

 

 

 

 

 

 

 
Dendra Accounting Group are currently specialising in potential government grants and subsidies for their SBE Manufacturing clients that may be able to access government grants, subsidies and tax refunds while pursuing their business goals.

The Local Industry Fund for Transition (LIFT) is a Victorian Government initiative that supports investment by businesses leading directly to new sustainable jobs in regions affected by the announced closures of the three major car manufacturers (Ford, Holden and Toyota) in Victoria.

It will focus on new investment to create new or additional capacity that results in sustainable jobs and helps the region build its economic base.

LIFT is part of the Victorian Government's Towards Future Industries: Victoria's Automotive Transition Plan, which aims to:

  • Help businesses in the automotive parts and related supply chain industries find new markets in the global automotive industry or other industries within Australia
  • Provide assistance to automotive industry workers to find new jobs
  • Support economic development in the areas most affected by the closure of the major car manufacturers.
LIFT replaces and builds on the former Geelong Region and Melbourne's North Innovation and Investment Funds.             

The program aims to create sustainable jobs and contribute to the economic development of the local areas most impacted by the closure of the major car manufacturers. This will be achieved through supporting capital investment by businesses located, or wishing to locate, operations in these areas to build each regions' economic base and create sustainable job opportunities.

Potential funding & Eligibility

Grants of up to 25 per cent of eligible project expenditure, with a maximum grant of $2 million.

There are a number of criteria that need to be satisfied in order to be eligible and we work with our clients to assist in assessment of eligibility for this particular grant as well as other applicable grants.

Call our office for a free one hour consultation so that we can discuss how this grant can assist your business while also covering eligibility requirements.

 

Tax on Property Sales Over $2 million

 

From 1 July 2016, new rules apply to sales of every Australian property over $2 million.

A 10% withholding tax has been introduced on all Australian property sales over $2 million. The new requirements will have a wide reaching effect and will impact every property sales in Australia over $2 million.

This 10% withholding tax has been announced to assist the government collect tax on the sale of Australian property by foreign residents. Unfortunately, this new rule will make selling a property just a little more difficult for everyone.

Each and every vendor, from 1 July, will need to apply for an ATO clearance certificate. This certificate, which will be issued by the ATO, will confirm whether withholding tax applies to that particular property sale.

The problem for Australian residents is that when they are selling a property for over $2 million, they MUST apply for a clearance certificate. If they do not have a clearance certificate, then the purchaser must withhold 10% from the sale price paid on settlement and then pay this directly to the ATO

Probably the concerning thing here as well is that if you are a purchaser and you don't request the clearance certificate and then fail to withhold 10%, then will the ATO come back to the purchaser and request for the 10% withholding to be paid.

So for those vendors who will be selling property after 1 July 2016 for a price of greater than $2 million, make sure that you have applied for and obtained a clearance certificate.

Every vendor and purchaser needs to be aware of the new rules from 1 July and ensure that they either obtain the clearance certificate through their accountants or solicitors well before settlement.

 

 

SuperStream is the standard way in which businesses submit their superannuation contributions for their employees. It effectively allows a business to pay superannuation contributions to all employees in one transaction.

Since 1 July 2015, employers with less than 19 employees have been encouraged to start using SuperStream. Employers with 20 or more employees have been compulsorily using this method since 31 October 2015.

However small employers (those with less than 19 employees) MUST use SuperStream from 1 July 2016.

Although there has been a lot of information around SuperStream, there are still many businesses who have not updated the way that they pay super. For some businesses, this will be relatively easy process, and for others, a little more complicated. The determining factor will be the accounting software that you are using.

Most accounting packages are offering a SuperStream function which will make the transition to SuperStream very easy. Those who don't use a mainstream accounting package will need to use another option such as the ATO's Small Business Superannuation Clearing House or other industry based clearing houses.

Although SuperStream has been marketed by the ATO as simplifying compliance for businesses, what it will definitely do is allow the ATO to very easily identify those employers who are not contributing superannuation on time. For those of you that don't know, if an employer pays superannuation late, then there are a number of consequences, the worst being that the actual superannuation due for the period becomes non-deductible. So in short, pay your super late, lose your tax deduction.

From 1 July 2016, it will be more important than ever to pay superannuation contributions on time. Fortunately, the integration of Superstream functions into accounting software will make every business owners life just a little easier.

George Kontominas

 
 

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Welcome to our redesigned site!

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