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January 2017

Choosing an Executor

 

Obligations and responsibilities of an executor are significant.  Their decisions can be monumental.

           

 

Yet it is common for will makers to nominate a family member as the executor of the will, without thinking about whether that person has the capabilities necessary to carry out their duties.

The executor should act with care and within a reasonable time frame.  The role of an executor occurs rarely during a lifetime for a family member, so it is not a typical skill set.  Guidance from specialists will assist with the legal and taxation maze, as well as avoiding costly decisions.

Should the investments be sold or distributed?  What are tax consequences of each decision?  Is there a risk of the share market falling to impact on a portfolio to the detriment of a (different) beneficiary?  Is there sibling rivalry?

Choosing one executor only from family can sometimes create an environment that causes financial loss and increased emotional stress for the whole family.

 

AcctWeb

Car salary packages and the deductibility of after-tax running costs

 

Including a car in a salary package is a popular remuneration arrangement, and doing so as part of a salary sacrifice package will often give rise the a “novated lease”.  

           

 

Costs in operating the vehicle can also be salary sacrificed.  This is typically referred to a fully novated lease.

A novated lease arrangement is a popular way that employers can reward and incentivise employees. Under the right circumstances, employees can reduce their personal tax liability under a salary sacrifice arrangement involving a novated lease.

A novated lease is a three-way deal – between an employee, a financier, and the employer. The employee owns the car, and the employer agrees to make lease repayments to the financier plus pay for any running costs for that car as a condition of employment.

Under such an arrangement, the employer takes over all or part of the lessee’s rights and obligations under the lease of the employee’s car. This transfer of rights and obligations is agreed to in a “deed of novation” between the employer, the finance company and the employee (lessee). The lease obligation typically reverts to the employee upon cessation of their employment.

Under a novated lease, apart from paying for the car lease repayments, the employer would usually pay for the car’s running costs, such as fuel, maintenance, registration and car insurance. For example, some employees are given a fuel card to help pay for petrol.

Is FBT involved?

A car fringe benefit arises under a full novated lease arrangement. The employer is required to determine any FBT liability using the statutory formula method as the default, or alternatively elect to use the log book method.

As FBT is generally borne by the employee as part of their salary package, FBT can be reduced by the employee making after-tax contributions towards the running costs. This is referred to as the employee contributions method.

To reduce the FBT payable on the benefit, the running costs will be paid by the employer company from a combination of an employee’s pre-tax and post-tax income under the salary sacrifice arrangement.

Are after-tax running costs deductible?

A question commonly asked is whether the running costs incurred by the employee from their after-tax income are deductible in their personal return.

And if so, can the employee use one of the two methods prescribed in the legislation (that is, the cents per kilometre method or the log book method) or otherwise, to claim a deduction for car expenses?

Expense deductions denied

Broadly, “car expenses” incurred by an employee in respect of a car provided by an employer are specifically denied as a deduction under the rules.

In particular, a deduction for “car expenses” is denied where:

  • an employer during a period provides a car for the exclusive use of a person who is, or of persons any of whom is, an employee of the employer or a relative of such an employee, and
  • at any time during that period, the employee or a relative of the employee is entitled to use the car for private purposes.

A “car expense” is defined under legislation to include any loss or outgoing to do with a car (including costs in operating the car and its tax depreciation). Note also that the deduction is denied for car expenses that are incurred:

  • during the relevant period in which the car was provided, or
  • is wholly or partly attributed to that period.

Also, as noted, a deduction is not allowed if the car is used by a relative such as a spouse, a parent or a child.

In this case, the running costs incurred by an employee from their after-tax income in relation to the car fringe benefit would not be deductible to them. In other words, they cannot claim a deduction for those costs – whether by using one of the methods mentioned above or as a general deduction.

This applies because the vehicle, under the novated lease arrangement, was provided to the employee for her exclusive and private use.

Notwithstanding the above, an employee may still benefit from the arrangement. The after-tax contributions towards the car’s running costs reduce the amount of FBT that they would have been required to salary sacrifice as a component of the total remuneration.

Tax & Super Australia 
www.taxandsuperaustralia.com.au

Government takes next step in tax cheats crackdown

 

The Turnbull government has launched an invitation for public comment to the Black Economy Taskforce ahead of an interim report in March, in an effort to stamp out tax evasion and loopholes.

         

 

In December 2016, Minister for Revenue and Financial Services, Kelly O’Dwyer, announced that a taskforce had been established to crack down on the black economy. 

The ‘black economy’ refers to those who operate entirely outside the tax system and those who are known to tax authorities but deliberately misreport their tax and superannuation obligations.

Ms O’Dwyer said that looking at the black economy is a logical next step in the government’s crackdown on tax avoidance.

“The government has taken significant action to shut down loopholes for multinationals that try and avoid paying tax through measures such as the Multinational Anti-Avoidance Law,” she said in a statement.

“The black economy is the next important piece in the tax integrity puzzle.”

The government has called for stakeholder submissions to the Black Economy Taskforce, which is due to deliver an interim report by March 2017 and a final report by October 2017.

“All those who have an interest in this important work, including those with innovative ideas on how to tackle this complex issue, are encouraged to provide initial views to the Taskforce secretariat by 17 February 2016,” Ms O’Dwyer said.

There will also be further opportunities for public engagement, with a consultation paper to be issued in March, setting out particular questions for comments and detailed submissions.

Additionally, a program of public meetings will be scheduled in the middle of the year.

LARA BULLOCK
Friday, 20 January 2017
accountantsdaily.com.au

Debt Recovery

 

All is not lost if you have a judgement against a debtor, but you know they have no assets.

         

 

If the debtor has employment, you can order the employer to pay.  An Attachment of Earnings Order instructs the employer to deduct installments from the salary and redirect to the debtor.

As expected, there will be limitations but the Court can order that 20% of wages be re-directed to the creditor.

So it is not necessary to abandon debt recovery action whenever you think the debtor has no assets.

 

AcctWeb

ATO issues stern reminder on new backpacker tax

 

Accountants with SME clients should be urging them to recall the new deadlines for employees on working visas to ensure compliance.

         

 

The ATO has urged all business owners who currently employ a backpacker to register by the 31 January 2017, so they can apply the new tax rate. 

From 1 January 2017, the new ‘backpacker tax’ of 15 per cent will be applied from the first dollar earned to any workers who hold a 417 or 462 visa.

The ATO’s assistant commissioner Michael Gleeson warned employers of working holiday makers to register by the January deadline via ato.gov.au and check their employee had the right visa before withholding at the new rate.

“Anyone currently employing someone on a 417 or 462 visa needs to register with the ATO by 31 January 2017 to use the new rate,” Mr Gleeson said.

“If you aren’t currently employing backpackers but will later in the year, you do not need to register by the deadline. You just need to register when you employ them.

“A registered employer should withhold at a rate of 15 per cent for the first $37,000 paid to a working holiday maker. An unregistered employer still has a withholding obligation but at standard foreign resident rates.”

Mr Gleeson said registering allowed the ATO to identify employers who were eligible to withhold tax at the concessional rate for backpackers.

“Knowing which employers have registered and are doing the right thing ensures we can focus our activities on working with employers of backpackers who are not withholding at the correct rate,” Mr Gleeson said.

“It’s quick and straightforward to register – it’s a simple online process and it will take about five minutes; we have already had about 8,350 registrations. We are seeing a steady stream of about 400 employers registering a day.”

Mr Gleeson said employers should also check their worker had the right visa, “to ensure they meet their obligations under the backpacker tax rules”, Mr Gleeson said.

“It’s better to register sooner rather than later, so don’t put it off,” Mr Gleeson said.

A worker’s visa status can be checked via the Visa Entitlement Verification Online (VEVO) service on the Immigration and Border Protection website.

 

STEPHANIE DELLER
Tuesday, 24 January 2017
accountantsdaily.com.au

ATO advises accountants on client data swoop

 

The ATO is urging accountants to inform clients that it is ramping up its data collection from financial institutions and online selling sites for use in its data-matching programs.

           

 

The ATO is collecting data to use for its credit and debit card, online selling and ride-sourcing data-matching programs. 

The data will include the total amount of credit and debit card payments businesses received, online sellers who have sold at least $12,000 worth of goods or services, and payments made to ride-sourcing drivers from accounts held by the ride-sourcing facilitator.

The ATO will match the data with information provided in clients’ tax returns, activity statements and other records.

The exercise will help the tax office identify businesses that need help and those that may not be reporting all their income or are not meeting their registration, lodgement or payment obligations.

Accountants are reminded that if their clients need to correct a mistake, they can lodge an amendment or make a voluntary disclosure on their behalf.

This is the latest in a string of warnings from the ATO about its increased data-matching capabilities, leaving targeted non-compliers with little chance of escaping detection. 

Social media was announced as a tax office target late last year, as well as private school records and immigration data. 

LARA BULLOCK
Friday, 20 January 2017
accountantsdaily.com.au

Home office deductions: What substantiation will the ATO accept?

 

Home office expense claims are subject to the same general substantiation requirements as other deductions – that is, it is a requirement that records should be kept for at least five years.

           

 

But in practice, full compliance with the substantiation rules may be difficult. It may be simple to keep a receipt for a printer purchased for a home business, but not so easy to prove the deductible proportion of a specific utilities bill. So the ATO has provided some administrative guidelines to ease this burden.

Proving business use proportion 

The ATO will generally accept these three methods of calculating the business use proportion for a particular expense (in order of preference):

  1. Explicit evidence of business use – such as an itemised phone bill.
  2. Records of representative periods of use – such as a diary record spanning a four-week period (see below for details).
  3. A “reasonable estimate” – the ATO does not define this term, but the taxpayer must be able to demonstrate that such a component was “reasonably likely” under the circumstances.

More about the four-week representative records 

Claims exceeding $50

The ATO requires a taxpayer to keep records for a four-week representative period in each income year in order to claim a deduction of more than $50. The taxpayer can choose to keep records for longer than four weeks or to base their deduction on itemised bills (see above) for the entire year for a more accurate deduction. 

The four-week record is merely the minimum amount of record-keeping that the ATO will accept. It is not a legal requirement to produce a time-limited representative record like the 12 week log book for car expense deductions. Remember to adjust the deduction for periods of leave taken.

According to an ATO fact sheet, the ATO will look favourably upon evidence that the employer expects the taxpayer to work at home or make work-related calls. But be aware that employer expectation is not a legal requirement. Under legislation and taking into account common law covering work-related expenses, it is enough that the expenditure is incurred in the course of producing assessable income and is not private, domestic or capital in nature.

Claims of $50 or less

Claims of $50 or less are not generally subject to substantiation checks by the ATO (although this is not explicitly stated). This however only affects the substantiation of the amount, and does not change the fact that the amount still has to be deductible under law. 

Therefore it would be prudent for the taxpayer to be able to show that they had a reasonable basis for making the claim (for example, to keep evidence that some work was done at home during the year).

Shared expenses 

According to the ATO, an invoice in the name of one person is acceptable as evidence of incurred expenditure for more than one person. This may be relevant where spouses or rental accommodation housemates each do home-based work, using shared utilities.

 

Tax & Super Australia 
www.taxandsuperaustralia.com.au

Clients failing on depreciation front – property investment

Several tax specialists and national mid-tiers have found clients are struggling to understand their rights and benefits associated with depreciation, …

… and accountants are being told to proactively engage with clients on the matter to avoid unwanted consequences at end of financial year. 

 

         

 

Bentleys Sunshine Coast managing director Peta Grenfell told Accountants Daily that accountants should actively educate clients with an interest in property investment about depreciation. 

“Clients usually understand there are tax benefits associated with owning a rental property, but they tend not to understand what they need to do to access the benefits, or how they work,” Ms Grenfell said.

“I think it comes down to the relationship the client has with their accountant. The more proactive the accountant is in helping the client to maximise their deduction and understand their investment the more likely we are to see an increase in understanding.”

In an interview with Accountants Daily, Pitcher Partners' David Staples said that accountants who don’t encourage communication and understanding early can end up creating more work for themselves and their clients in the long run.

“The most critical thing is for people to actually talk in advance,” Mr Staples said.

“I say to people if you don’t talk to us before you do it we can't help you and then it's a bit late after you've bought the property to tell your accountant 'oh we've bought this property' and then you try to get depreciation or capital works schedules out of people.”

Mr Staples said that record keeping is the most important aspect to save both accountants and clients time when it comes to doing tax returns.

“One of the things accountants can actually do is help people set up ways of tracking and keeping proper records because it's hard a year and a half after you've bought the property to come and do your tax return and say where's all this information,” he said.

BMT CEO Bradley Beer said there are five key mistakes that investors commonly make which accountants should work to educate them on.

The first mistake many investors make is not claiming all the legitimate items they are allowed to depreciate.

The second is investors believing that their properties are too old to hold any deductions, when a property’s age doesn’t necessarily rule out all deductions completely.

Thirdly investors who renovate their properties are often not aware of scrapping deductions available for the assets they remove and replace.

The fourth common mistake is investors believing that because they purchased their investment property some time ago that they cannot benefit from tax depreciation or items that may have been missed in a previous claim.

Lastly, many investors attempt to do their own tax claim and miss things out.

 

LARA BULLOCK
Wednesday, 18 January 2017
accountantsdaily.com.au