The Government has decided not to put the Treasury Laws Amendment (Enterprise Tax Plan No. 2) Bill 2017 to a vote in the Senate … for the present point in time (it had already passed the House of Representatives without amendment).

The Bill aims to progressively extend the lower 27.5% corporate tax rate to all corporate tax entities by the 2023/24 financial year, and further reduce the corporate tax rate in stages so that, by the 2026/27 financial year, the corporate tax rate for all entities would be 25%.

Editor: Parliament resumes on 13 August 2018, coincidentally after some by-elections have taken place on 28 July . . .

Opposition confirms it won’t repeal already legislated company tax cuts.

Editor: Just in case the tax cut situation wasn’t confusing enough, the leader of the Opposition, Bill Shorten, announced at a doorstop interview that, if elected, Labor would repeal the existing company tax cuts for companies with turnover between $10 and $50 million.

However, a few days later, after a Shadow Cabinet meeting, Mr Shorten confirmed that a Labor government would not touch business tax cuts that have already been legislated, due to the uncertainty that would generate.

However, he reiterated that Labor does not support the further tax cuts for larger companies that may be legislated in the future.

The ATO claims that it is committed to supporting small businesses and making it as easy as possible for them to understand and meet their tax obligations at tax time.

Consequently, Assistant Commissioner Mathew Umina has some tips to help small business in the lead up to and during tax time, including:

• keeping up-to-date records, which will help small businesses to complete and lodge their tax returns, manage cash flow, meet their tax obligations and understand how their business is doing;
• consider small business tax concessions, such as:
  • simplified trading stock rules (if the estimate of the difference between opening and closing trading stock is $5,000 or less, the small business doesn’t need to do a stocktake);
  • concessions that allow new small businesses to claim an immediate deduction for start-up costs like professional, legal and accounting advice;
  • simplified depreciation rules, including the $20,000 instant asset write-off for assets costing less than $20,000 bought and installed by 30 June 2018.

Please contact our office if you need any advice as to how any of the abovementioned small business tax concessions may be relevant to your business.

A focus on work-related clothing and laundry expenses this Tax Time will see the ATO “more closely examine taxpayers whose clothing claims don’t suit them”.

According to Assistant Commissioner Kath Anderson, around 6 million people claimed work-related clothing and laundry expenses last year, with total claims adding up to nearly $1.8 billion.

She went on to say:

“While many of these claims will be legitimate, we don’t think that half of all taxpayers would have been required to wear uniforms, protective clothing, or occupation-specific clothing.”

With clothing claims up nearly 20% over the last five years, the ATO believes a lot of taxpayers are either making mistakes or deliberately over-claiming.

Common mistakes include people claiming ineligible clothing, claiming for something without having spent the money, and not being able to explain the basis for how the claim was calculated.

“Around a quarter of all clothing and laundry claims were exactly $150, which is the threshold that requires taxpayers to keep detailed records. We are concerned that some taxpayers think they are entitled to claim $150 as a ‘standard deduction’ or a ‘safe amount’, even if they don’t meet the clothing and laundry requirements,” Ms Anderson said.

“Just to be clear, the $150 limit is there to reduce the record-keeping burden, but it is not an automatic entitlement for everyone. While you don’t need written evidence for claims under $150, you must have spent the money, it must have been for uniform, protective or occupation-specific clothing that you were required to wear to earn your income, and you must be able to show us how you calculated your claim.”

Ms Anderson said the ATO also has conventional clothing in its sights this year. “Many taxpayers do wear uniforms, occupation-specific or protective clothing and have legitimate claims.  However, far too many are claiming for normal clothing, such as a suit or black pants.  Some people think they can claim normal clothes because their boss told them to wear a certain colour, or items from the latest fashion clothing line.  Others think they can claim normal clothes because they bought them just to wear to work.

“Unfortunately they are all wrong – you can’t claim a deduction for normal clothing, even if your employer requires you to wear it, or you only wear it to work”.

From 1 July 2018, responsibility for the administration of the early release of superannuation benefits on compassionate grounds will be transferred from the Department of Human Services (DHS) to the ATO.

Since the ATO is responsible for most of an individual’s interactions with the superannuation system, this change will enable the ATO to build on these existing relationships and provide a more streamlined service to superannuation fund members.

A key improvement under the new process is the ATO providing electronic copies of approval letters to superannuation funds at the same time as to the applicant, which will mitigate fraud risk and negate the need for superannuation funds to independently verify the letter with the Regulator.

Individuals will also upload accompanying documentation simultaneously with their application, rather than the current ‘two-step process’.

Since DHS will accept early release applications up until 30 June 2018, there will be a short transition period where DHS will continue to process those existing applications and complete any necessary reviews.

Nonetheless, from 1 July 2018 the ATO will process all new applications.

Parliament has passed the Government’s Personal Income Tax plan, meaning that the first stage of the proposed income tax cuts will start to take effect from 1 July 2018.

According to the Prime Minister, taxes “will now be lower, fairer and simpler”.

The Government’s plan has three steps:

1. The Government will introduce the Low and Middle Income Tax Offset (in addition to the Low Income Tax Offset) from 1 July 2018, being a non-refundable tax offset of up to $530 per annum to Australian resident low and middle income taxpayers (apparently over 10 million taxpayers will get at least some tax relief from this new offset in 2019 income year).

The offset will be available for the 2019, 2020, 2021 and 2022 income years and will be received as a lump sum on assessment after an individual lodges their tax return.

2. Lifting tax brackets, to protect Australians from the impact of ‘bracket creep’, as follows:

• From 1 July 2018, the top threshold of the 32.5% personal income tax bracket will increase from $87,000 to $90,000.
• From 1 July 2022, the 19% personal income tax bracket will increase from $37,000 to $41,000, and the top threshold of the 32.5% personal income tax bracket will further increase from $90,000 to $120,000.

The low income tax offset will also be lifted to $645.

3. The 37% tax bracket will be removed entirely from 1 July 2024, and the top threshold of the 32.5% personal income tax bracket will be increased from $120,000 to $200,000.

We will need you to bring information to assist us in preparing your income tax return.

Please check the following and bring along payment summaries, statements, accounts, receipts, etc. to help us prepare your return.

Income/Receipts:

• payment summaries for salary and wages;
• lump sum and termination payments;
• government pensions and allowances;
• other pensions and/or annuities;
• allowances (e.g., entertainment, car, tools);
• interest, rent and dividends;
• distributions from partnerships or trusts;
• details of any assets sold that were either used for income earning purposes or which may be caught by capital gains tax (CGT).

Expenses/Deductions (in addition to those mentioned above):

• award transport allowance claims;
• bank and government charges on deposits of income, and deductible expenditure;
• bridge/road tolls (when travelling on business);
• car parking (when travelling on business);
• conventions, conferences and seminars;
• depreciation of library, tools, business equipment (incl. portion of home computer);
• gifts or donations;
• home office running expenses – provide average hours worked per week OR:
  • cleaning
  • cooling and heating
  • depreciation of office furniture
  • lighting
  • telephone and internet;
• interest and dividend deductions (applicable to investment bank accounts only):
  • account keeping fees
  • ongoing management fees
  • interest on borrowings to acquire shares
  •  advice relating to changing investments (but not setting them up);
• interest on loans to purchase equipment or income-earning investments;
• motor vehicle expenses (business/work related) – KMs travelled over the financial year OR:
  • logbook;
• overtime meal allowances;
• rental property expenses – including:
  • advertising expenses
  • council/water rates
  • insurance
  • interest
  • land tax
  • management fees/legal expenses
  • genuine repairs and maintenance;
• personal superannuation contributions;
• sun protection items;
• tax agent fees;
• telephone expenses (business use only);
• tools of trade.

The following outlines common types of deductible expenses claimed by individual taxpayers, such as employees and rental property owners, plus some strategies that can be adopted to increase deductions for the 2017/18 income year.

1. Depreciable plant, etc. costing $300 or less

Salary and wage earners and rental property owners will generally be entitled to an immediate deduction if certain income-producing assets costing $300 or less are purchased before 1 July 2018.

Some purchases you may consider include:

• books and trade journals;
• briefcases/luggage or suitcases;
• calculators, electronic organisers;
• electronic tablets;
• software;
• stationery; and
• tools of trade.

2. Clothing expenses

Purchase or pay for work-related clothing expenses prior to the end of the income year, such as:

• compulsory (or non-compulsory and registered) uniforms, and occupation specific and protective clothing;
• other expenses associated with such work-related clothing, such as dry cleaning, laundry and repair expenses.

3. Self education expenses

Consider prepaying the following self education items before the end of the income year:

• course fees (but not HECS-HELP fees), student union fees, and tutorial fees;
• interest on borrowings used to pay for any deductible self education expenses.

Also bring forward purchases of stationery and textbooks (i.e. those which are not required to be depreciated).

4. Other work-related expenses

Employees can prepay any of the following expenses prior to 1 July 2018:

• union fees;
• memberships to trade, professional or business associations;
• magazine and professional journal subscriptions;
• seminars and conferences;
• income protection insurance (excluding death and total/permanent disability).

Note: When prepaying any of the expenses above before 1 July 2018, ensure that any services being paid for are to be provided within a 12 month period that ends before 1 July 2019.  Otherwise, the deductions must generally be claimed proportionately over the period of the prepayment.

A good strategy to reduce tax payable is normally to accelerate any income tax deductions into the current income year, which will reduce overall taxable income in the current year.

The tax rates for resident (adult) individual taxpayers for the 2017/18 income year are as follows:

1. The Medicare levy of 2% generally applies in addition to these rates.

Maximising deductions for SBE taxpayers

Deductions can be maximised for SBE business taxpayers by accelerating expenditure and prepaying deductible business expenses. Former Simplified Tax System (‘STS’) taxpayers who have continued to use the STS cash method since before 1 July 2005 cannot accrue expenses, but other SBE taxpayers on an accruals basis can accrue expenses.

Accelerating expenditure – SBE

All SBE taxpayers can choose to write-off depreciable assets costing less  than  $20,000 in the year of purchase*. Also, assets costing $20,000 or more are allocated to an SBE general pool and depreciated at 15% (which is half the full rate of 30%) in their first year. Therefore, where appropriate, SBE business taxpayers should consider purchasing/installing these items by 30 June 2018.

It should be noted that SBE taxpayers choosing to use the SBE depreciation rules are effectively ‘locked in’ to using those rules for all of their depreciable assets.

Further note, former STS taxpayers who have continued to use the STS cash method since before 1 July 2005 and who qualify as an SBE are generally only entitled to deductions if they have paid the amount by 30 June.

(*) The small instant asset write-off threshold has been temporarily increased to ‘less than $20,000′, for assets acquired and installed ready for use between 7.30pm(AEST) 12 May 2015 and 30 June 2018. On 8 May 2018 the Government announced it intends to extend this date to 30 June 2019.

Prepayment strategies – SBE

SBE taxpayers making prepayments before 1 July 2018  can choose to claim a full deduction in the year of payment where they cover a period of no more than 12 months (ending before 1 July 2018). Otherwise, the prepayment rules are the same as for non-SBE taxpayers.

The kinds of expenses that may be prepaid include:

• Rent on business premises or equipment.
• Lease payments on business items such as cars and office equipment.
• Interest – check with your financier to determine if it’s possible to prepay up to 12 months interest in advance.
• Business trips.
• Training courses that run on or after 1 July 2018.
• Business subscriptions.
• Cleaning.

Information Required

This is some of the information we will need you to bring to help us prepare your income tax return:

• Stocktake details as at 30 June.
• Debtors listing (including a list of bad debts written off) as at 30 June. Note: In order to claim a deduction, the debt must be written off on or before 30 June.
• Creditors listing as at 30 June.

Maximising deductions for non-SBE taxpayers

Non-SBE business taxpayers should endeavour to maximise deductions by adopting one or more of the following strategies:

• Prepayment strategies;
• Accelerating expenditure; and
• Accrued expenditure.

Prepayment strategies – non-SBE

Any part of an expense prepayment relating to the period up to 30 June is generally deductible.

In addition, non-SBE taxpayers may generally claim the following prepayments in full:

• expenditure under $1,000;
• expenditure made under a ‘contract of service’ (e.g., salary and wages); or
• expenditure required to be incurred under law.

Note: Prepayments can be a little confusing, so before you commit to making a payment please feel free to call us with any queries or assistance if required.

Accelerating expenditure – non-SBE

This is where a business taxpayer brings forward expenditure on regular, on-going deductible items. Business taxpayers are generally entitled to deductions on an ‘incurred basis’. Therefore, there is generally no requirement for the expense to be paid by 30 June 2018 (as long as the expense has genuinely been ‘incurred’, it will generally be deductible).

Checklist

The following may act as a checklist of possible accelerated expenditure:

• Depreciating assets costing $100 or less can be written off in the year of purchase. Depreciating assets costing less than $1,000 can be allocated to a low value pool and de­preciated at 18.75% (which is half of the full rate of 37.5%) in their first year regardless of the date of purchase.
• Repairs to office premises, equipment, cars or other business items.
• Consumables/spare parts.
• Client gifts.
• Donations.
• Advertising.
• Fringe benefits – any benefits to be provided, such as property benefits , could be purchased and provided prior to 1 July 2018.
• Superannuation – contributions to a complying superannuation fund, to the extent contributions are actually made (i.e., they cannot be accrued but must be paid by 30 June).

Accrued expenditure – non-SBE

Non-SBE taxpayers (and some SBE taxpayers) are entitled to a deduction for expenses incurred as at 30 June 2018, even if they have not yet been paid.

The following expenses may be accrued:

• Salary or wages and bonuses – the accrued expense for the days that employees have worked but have not been paid as at 30 June 2018.
• Interest – any accrued interest outstanding on a business loan that has not been paid as at 30 June 2018.
• Commercial bills – the discount applicable to the period up to 30 June 2018, where the term of the bill extends past 30 June.
• Commissions – where employees or other external parties are owed commission payments.
• Fringe benefits tax (FBT) – if an FBT instalment is due for the June 2018 quarter, for example, but not payable until July, it can be accrued and claimed as a tax deduction in the 2018 income year.
• Directors’ fees – where a company is definitively committed to the payment of a director’s fee as at 30 June 2018, it can be claimed as a tax deduction.