Home Office – what you can claim and what you can’t

The way we work is changing. Increasingly, we demand flexibility in the way we work or run our business and it is now common for people to spend some of their time working from home.

The ATO keeps a close eye on the deductions which taxpayers claim for working from home.  It’s easy to make a mistake, perhaps by claiming too high a work-related proportion for a particular type of expense, claiming something that shouldn’t be claimed at all or simply not keeping evidence to prove the expense.

At Select Accounting we have encounter taxpayers who simply don’t know that they can claim for working from home. Previously, they have missed out on deductions which we know they are entitled to.

What expenses can you claim if you work from home?

The deductions you may be able to claim for are:

  • occupancy expenses such as rent, mortgage interest, rates, land taxes and house insurance premiums (but only in limited circumstances, see below)
  • running expenses such as:
  1. home office equipment, including computers, printers and telephones. You can claim the full cost (for items costing up to $300) or the decline in value (for items costing $300 or more). If you’re self-employed, you may be able to immediately write-off equipment costing up to $20,000.
  2. work-related phone calls (including mobiles) and phone rental. You can claim a portion reflecting the share of work-related use of the line if you can show you are on call, or have to phone your staff, employer, customers or clients regularly while you are away from your workplace
  3. heating, cooling and lighting
  4. the costs of repairs to your home office furniture and fittings, and
  5. cleaning expenses.

 

Being able to claim these expenses depends on whether your home is your place of work or business and if you have an area set aside exclusively for work activities.

If your home is your place of business and you have an area set aside exclusively for work activities, you may be able to claim both occupancy and running expenses. If, as is more typical, you carry on your work or business elsewhere (at an office, perhaps) but do some work at home occasionally, you cannot claim occupancy expenses – even if you have a home work area set aside.

The below table shows the deductions you can claim for the three ways you can work at home:

 

 

What you can claim How you work
Home is your place of business or work and you have a home work area Home is not your place of business but you have a home work area You work at home but you don’t have a home work area
Occupancy expenses

Cost of owning or renting the house

Yes No No
Running expenses

Cost of using a room (such as gas or electricity)

Yes Yes Yes
Business phone costs Yes Yes Yes
Decline in value of office plant and equipment (such as desks, chairs and computers) Yes Yes Yes
Depreciation of curtains, carpets, light fittings, etc Yes Yes No

 

Once you have determined the costs that you can deduct, you are required to keep the relevant records (for 5 years). These can be:

  • receipts or other written evidence of your expenses – including receipts for items of equipment you have purchased – remember receipts fade, best to scan or take a photocopy
  • diary entries you make to record your small expenses ($10 or less) totalling no more than $200, or expenses you cannot get any kind of evidence for, regardless of the amount
  • itemised phone accounts from which you can identify work-related calls, or other records, such as diary entries (if you do not get an itemised account from your phone company)
  • a diary you have created for work to calculate how much you used your equipment, home office and phone for business purposes over a representative four-week period.

 

Alternatively, you can claim a flat rate allowance of 45 cents per hour for each hour you work from home but if you claim this, no other claim for individual items will be allowed.

Make sure you claim everything you’re entitled to, not a cent less and not a cent more and make sure you can prove that expenditure either through receipts or diaries.

If you’re not sure what you can and can’t claim, contact the team at Select Accounting to ensure you claim everything you’re entitled to.

 

General advice warning:

The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.]

Time Is Running Out!

Time is running out for you to use the $20,000 instant asset write-off.

If you buy an asset and it costs less than $20,000, you can immediately deduct the business portion in your tax return. The $20,000 threshold applied from 12 May 2015 and will reduce to $1,000 from 1 July 2018.

You are eligible to use simplified depreciation rules and claim the immediate deduction for the business portion of each asset (new or second hand) costing less than $20,000 if:
• you have a turnover less than $10 million (increased from $2 million on 1 July 2016), and
• the asset was first used or installed ready for use in the income year you are claiming it in.

Assets that cost $20,000 or more can’t be immediately deducted. They will continue to be deducted over time using the general small business pool. You write-off the balance of this pool if the balance (before applying any other depreciation deduction) is less than $20,000 at the end of an income year.

Contact the team at Select Accounting if you have any further questions on (02) 4337 5155 or info@selectacc.com.au

Work Related Expenses Headed For Shake-Up

The upcoming Federal Budget could see work-related expenses claims replaced with standard deductions, in light of the ATO’s castigation of excessive claims in recent months.

The ATO’s campaign against excessive claims have been led by commissioner Chris Jordan, who has publicly lashed out at tax agents for “not fulfilling their duty” after the tax office’s random enquiry program had found that incorrect claiming was worst in agent prepared returns.

Further, the Tax Office’s public statements, speeches and cautions to tax professionals has been backed by the Tax Practitioners Board, which has reminded tax agents to remember their obligations as set out in the Code of Professional Conduct.

Speaking to Accountants Daily, HLB Mann Judd partner, Peter Bembrick, said there has been talk in the industry over the possibility of the ATO adopting a standard deduction, similar to the system used by the Internal Revenue Service (IRS) in the US.

“There have been comments by the commissioner that people are over-claiming in work-related deductions and they are claiming things that are unsubstantiated so if you went to a system like in the US where there is a standard deduction limit, say something like $500, and if you think you’ve spent more and you’ve got the receipts and records to prove it, then by all means claim more, but if you don’t, just claim the $500 and then forget about claiming any other expenses,” said Mr Bembrick.

“There will be one area which will simplify compliance for a lot of people

“The problem we have is that we have the $300 limit in terms of substantiation where there are a lot of people out there that think they are allowed to collect $300 without receipts, which is true but it’s meant to be for really small items and work-related deductions that you have actually spent. If you get a tax audit you’re meant to explain what it is.”

Mr Bembrick further believes a move to a standard deduction would help the ease the ATO’s workload, while simplifying the process for taxpayers.

“With a standard deduction, the ATO doesn’t have to spend any resources analysing because it is in the law and you can make an automatic claim,” said Mr Bembrick.

“It would be a win for people who aren’t claiming anything but it would certainly simplify the process and maybe take a bit of the heat out of the whole issue of work-related deductions because I’m sure the ATO has plenty of other things to focus on.

“That’s one thing that has been mentioned and it is perhaps feasible — I’m not sure what the revenue impact would be in terms of tax collections but more of easing the compliance burden perhaps.


Mr Bembrick’s comments echo those of the Institute of Public Accountants’ general manager of technical policy, Tony Greco, who said “we should consider ourselves lucky” if changes to work-related deductions were avoided in the budget.

“Treasury has been briefed with the results of ATO audits, so the government will be armed with statistics to justify a change in the work-related expenses rules to tighten them and put savings towards tax cuts for all as a possible carrot,” said Mr Greco.

“Australia has one of the most generous work-related expenses tax frameworks, so if we dodge the bullet come the next federal budget we should consider ourselves lucky indeed.”

Scams Targeting ASIC Customers

Scammers pretending to be from ASIC have been contacting Registry customers asking them to pay fees and give personal information to renew their business or company name.

These emails often have a link that provides an invoice with fake payment details or infects your computer with malware if you click the link.

Warning signs the email is not from ASIC.

An email is probably a scam and is not from ASIC if it asks you:
to make a payment over the phone
to make a payment to receive a refund
for your credit card or bank details directly by email or phone
Here is an example of a scam email from 11 April 201.

If the email you received contains the above information, it is not from ASIC.

How do I protect myself from email scams?

To help protect yourself:
keep your anti-virus software up to date
be wary of emails that don’t address you by name or misspell your details and have unknown attachments
don’t click any links on a suspicious email.
You can also check your registration renewal date; ASIC will only issue a renewal notice 30 days before your renewal date. You can search for your business name on our register and if it’s outside our usual timeframe, it might be a scam.


How do I notify ASIC of a potential scam?

If you would like to notify ASIC of a potential scam email, you can forward the entire email to ReportASICEmailFraud@asic.gov.au.

ATO Extends Due Date For 2016/17 SMSF Returns

The ATO will extend the due date for lodgement of self-managed superannuation fund (SMSF) annual returns for 2016/17 to 30 June 2018.

Deputy Commissioner James O’Halloran said “We recognise there are some major new considerations and decisions for SMSFs and their advisers to make in this first financial year of operation of the superannuation reforms that came into effect from 1 July 2017.

“We have therefore decided to extend the lodgement date for 2016/17 SMSF annual returns so that SMSF trustees and their advisers can focus on these important matters.

“We have heard from many professionals that their current focus is on providing important advisory services to their SMSF clients to ensure they are in the best position to make decisions to take into account some of the recent superannuation reforms including eligibility for transitional capital gains relief.”

The extended lodgement time frame therefore means that all SMSFs who are eligible for transitional CGT relief as a result of the $1.6 million transfer balance cap will have additional time to consider and make relevant elections before the due date for lodgement of their 2016/17 SMSF annual return.
Because the extended due date of 30 June 2018 falls on a Saturday, in accordance with relevant administrative provisions of the tax laws, lodgement of 2016/17 SMSF annual returns can made on the next business day, Monday 2 July, without penalty.
General advice disclaimer

General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.]

Ref: ATO media release, 19 January 2018

Goverment Extends The FBT Exemption For Potable Electronic Devices For Small Businees Employers

Government extends the FBT exemptions for portable electronic devices for small business employers

In the 2015/2016 Federal Budget, the Federal Government announced that it would extend the FBT exemption for portable electronic devices (for example laptop computers and mobile phones) to allow small business employers to provide more than once ‘portable electronic device’ to an employee in the one FBT year. This extension of the FBT exemption for portable electronic devices for small business employers applies from 1April 2016 (i.e., the 2017 FBT year onwards).
Under the new rules, the substantially identical function limitation will not apply for small business entity (‘SBE’) employers who provide more than one work-related portable electronic device to an employee, in the same FBT year, without attracting any FBT (assuming the device is actually used primarily for use in the employee’s employment).
One important aspect of the changes to the FBT-exemption for portable electronic devices that appears to have been overlooked is that the extended exemption applies regardless of whether or not the device is provided under a salary packaging arrangement. In other words, the extended FBT exemption for portable electronic devise is effectively a blanket exemption, meaning that employees of SBE employers are now entitled to salary package an unlimited number of portable electronic devices and allow the employer to claim the FBT exemption. However, any employees considering salary packaging multiple devices must be able to demonstrate that each device is being used ‘primarily’ in their employment.
It is expected that the ATO will closely scrutinise any arrangement under which an employee salary packages multiple portable electronic devices in the one FBT year, to establish whether the device were to be used primarily in their employment or whether they were being used for other private purposes (e.g., by children of the employee for school-related purposes.

Source: NTAA Edition No:227

General advice disclaimer General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

5 money mindsets that hold you back

What’s holding you back from taking control of your financial future? Discover the five mind tricks that can stop you from achieving financial success and what you can do to avoid them.

Fear of Failure

Earning and saving money from your salary is all very well. But setting up an alternative income stream from an investment portfolio can help you make the most of your personal wealth potential. So, what is it that holds people back from taking their first steps into investing? According to recent surveys, 70% of millennials would rather keep their savings in cash1 instead of investing it and getting the benefit of compound interest. And one of the main reasons for their reluctance is their fear of losing what little money they have.

Fear is certainly one of the biggest reasons for avoiding the risks, large or small, that come with investing money. And no-one has a magic wand to eliminate these risks altogether. But with advice from a professional who understands your financial circumstances and goals, you can get off to a successful start in investing that builds your confidence as well as your wealth.

Waiting for wealth

It’s all too easy to just wait for someone else to sort out your financial future. You might keep saying that you’ll start building your savings and wealth when that golden goose lays its egg for you. And that egg you’re counting on – whether it’s a higher salary, bonus or redundancy payout for your employer or a gift or inheritance from your family – may never arrive.
If this is the fairy story you’ve been telling yourself, it’s time to rewrite it with yourself as the hero. By sticking to a budget, coming up with your most important goals and creating a financial plan to help you reach them, you’ll soon become your very own golden goose.

The high price of inertia

We’re all busy people and we all have a comfort zone. And that’s why inertia can so often stand in the way of spending less and saving more. In fact, inertia is considered, such a big problem for personal financial security in the UK that a new Institute of Inertia has been established at the University of Sheffield to study behaviour that’s estimated to cost the nation £7.6 billion2.
Inertia can mean spending more than you need to on your energy or grocery bills. It could also be stopping you from tracking down lost super and/or bringing together all your super savings in a single fund to save on fees. Or it could mean sticking with the same mortgage when you could be saving thousands in interest by switching. Whatever it is that you’re not getting around to doing to save money, having a financial coach – personal or professional – can keep you accountable in taking small steps towards big savings.

The lifestyle inflation trap

The “earn more, spend more” phenomenon has been dubbed “lifestyle inflation” and it’s something that can really get in the way of preparing for a better financial future. The dangers of behaviour that comes from lifestyle inflation are twofold. The first is what’s known as the Diderot effect3. This happens when you buy something new, stylish and beautiful and it makes all your other stuff seem shabby and old. So, you start to replace everything else as well.

The second issue is your new level of wealth can’t last forever. Even if you keep earning more a time is going to come when you’ll stop. We call it retirement and if you’re not saving and planning for it, the fall in your spending and standard of living is going to be very steep indeed. So, if you’re finding it hard to save even when you’re earning more, try looking in to the future and imagining how much you’ll be enjoying life when you must budget carefully to pay for food and other essentials, let alone buy anything new.

Winging it won’t work

Leaving your finances to chance won’t bring you the peace of mind that comes with prosperity. Having the money to back future choices – for your career, family and lifestyle – isn’t going to happen by accident. People who make it look easy have probably put in quite a lot of time and effort to ensure they’re in a good place financially.

If you’re naturally a happy go lucky kind of person you’re probably well-liked for your carefree generosity. Especially when you’re the first among your friends to open your wallet and pay the lion’s share of the bar or restaurant bill. Sticking to a budget doesn’t have to mean being stingy. It’s more a case of picking and choosing your generous moments so you can still cover your day-to-day expenses and put some of your money towards providing for your future.

Whatever obstacle you’re trying to overcome on the path to financial success, a financial planning professional can offer valuable advice on making changes to get you in control of your finances.

Contact us today for a free initial meeting with us, and we will give you a plan to make your business worth a lot more when you decide to eventually sell it.

Source: Financial Planning Association Money & Life

1. Nerdwallet, “Fear keeps millennials on investing sidelines”, Brad Sherman, 2 August 2016, https://www.nerdwallet.com/blog/investing/millennials-fear-investing/?trk=nw-wire_305_283020_24452

2. The University of Sheffield, “Britain’s psychological inertia contributes to ‘financial hardship’”, 23 September 2015, https://www.sheffield.ac.uk/news/nr/psychological-inertia-contributes-to-financial-hardship-1.510235

3. Lifehacker, “The ‘Diderot Effect’ Turns You into A Weak, Mindless Consumer,” Kristin Wong, 16 September 2015, https://www.lifehacker.com.au/2015/09/the-diderot-effect-turns-you-into-a-weak-mindless-consumer

General advice disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

The 2 Key Things That Can Affect Your Business Value

How can you make your business worth a larger amount when you want to sell it?

Before we answer this question, remember: your business will only be worth what someone else is willing to pay for it.

So, you may think it is worth $1 million, but if your best offer is only $500,000, then $500,000 is realistically what your business is worth.

How can you attract a buyer and get them to pay the price you want?

A basic business value formula

Most small and medium sized businesses are valued using a business valuation method known as the “Capitalisation of Earnings” method.

This valuation technique works by taking the earnings (before interest and tax – referred to as EBIT) of a business and multiplying them by what is known as a multiple.

Business Value = Earnings before Interest and Tax (EBIT) x Multiple.

Working out the appropriate multiple is often the most difficult thing to agree on when valuing a business. For most of small and medium sized businesses, the multiple would be between 1 and 5.

For example: A business making an EBIT of $200,000 is assessed by an accountant to have a multiple for sale purposes of 3.

Business value = $200,000 x 3 = $600,000.

How to increase business value

Using the above valuation technique, there are 2 ways to increase your business value.

1. Increase EBIT; and/or

2. Increase the multiple
Increasing EBIT is all about your business making higher profits by increasing revenue and possibly by decreasing expenses.

Increasing the multiple involves making your business less “risky” to the buyer.

Why?

What the buyer is buying is a cashflow from your business into the future. If you can clearly demonstrate to the buyer that this cashflow is strong, is not expected to stop, and is expected to increase over time with business growth – then the multiple you can ask for will be higher.

Here’s a few things that will lead to less risk for your business, and therefore should lead to a higher multiple when you sell your business:

• Proper systems so the business can work without the business owner having to be there.

• Prove to the buyer the future growth of the business

• A diverse, expansive customer base (so the business doesn’t just rely on a few key customers)

• Contracts with key suppliers that will continue after the business is sold.

This information is just a general starting point to help you understand how to make your business worth more.

But…

It doesn’t happen overnight. You need a 3 to 5 year plan to properly do everything needed to have your business sale ready.

Our expert accountants have had huge experience in this area.

Contact us today for a free initial meeting with us, and we will give you a plan to make your business worth a lot more when you decide to eventually sell it.
General advice disclaimer
General advice warning:


The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.]

Business owners – what is your end game?

Why do you own a business?

It’s interesting to consider this because we are shocked at how many business owners haven’t taken the time to consider this fundamental question.


From a big picture perspective, having a business provides you with a lifestyle. That’s it!

It gives you cash now to fund your family spending, and hopefully a lot of cash in the future when you sell your business.

And it’s very similar to having a Self Managed Super Fund (SMSF), an investment property or share investments. They give you cash either now or in the future, or a combination of now and future.

Having a business, SMSF or an investment property is not the important thing. The important thing is what the cash you receive from owning these allows you and your family to do.

Your plans for what you do will do with your business, SMSF or investment property in the future are what we call your ‘end game’.

A good business mentor and friend of mind once taught me that “the point of having a business is to sell it – even if you don’t want to right now.”

This one pearl of wisdom could mean hundreds of thousands or even millions of dollars more for you in the future if you let it guide you now.

Here’s how… as you run your business, start to make decisions now to plan for selling it – even if you don’t plan to sell it for many years.

The biggest thing you can do is to make changes so that your business does not depend on you. If your business needs you to operate – can you really sell it? Absolutely not.

Setting up systems for your business is the key. You can them train your team to follows your systems, and then you can gradually delegate what you do to the right team members, and then you’ll find that you’ve got a business that can partially run without you.


Would you like us to be your sounding board?

As your accountants, we can help you to work out your end game, and plan to have a business that you can sell for a much larger amount in the future because it doesn’t depend on you.

Contact us today for a free initial meeting about creating your end game.

Next month, we’ll explain the 2 key things that affect the valuation of your business, and how you can improve your business value in a future sale.


General advice disclaimer
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.

Five Expensive but Avoidable Financial Mistakes

Years ago everyone looked forward to their “retirement” at age 55. But these days, do you really want to retire?

We’ve all heard many stories about people who retire, and they’re dead less than a year later. Why?

Because they have nothing keeping them mentally active, nothing keeping them going with real purpose.

Instead of aiming for retirement, we believe everyone should be aiming for financial freedom. Freedom to do what you want, when you want.

The road to financial freedom has many potholes. Here are some of the most common mistakes, with help on how to avoid them.

Too little too late
The Government has deliberately set up our superannuation system to favour those who start early and stay on track. Those who leave it to the last minute often do so at their own peril. Start as soon as possible and map out your road to financial freedom.

Pay unnecessary taxes
There are many simple, legal ways to make sure you are not paying more tax than you need to. Ask us at Select Accounting if you are making the most of the tax incentives offered by the Government.

Fall for investment fads

This probably poses the greatest single danger to your prosperity. Tech stocks in the late 1990’s and speculative miners in the late 2000’s were very tempting when they were rising fast. Your best weapon against this temptation is to develop a disciplined investment plan and stick with it.

It won’t happen to me
Wealth management is just as much about protecting your assets as it is about building wealth. Make sure you have a “Plan B” to pay off your house and look after your family if you were to die or be permanently unable to work. Your ability to earn money is actually your most valuable asset, so it’s vital to protect that asset with income protection insurance. If you don’t have income protection insurance – please contact us IMMEDIATELY for a free quote.

Fail to plan
As the old adage goes, “if you fail to plan, you plan to fail”. If you can articulate your goals and visualise what achieving these goals looks like, you are well on your way to achieving them. Write down your three most important goals and keep then in a safe place to review at least once a year.