Tax offset v tax deduction: What’s the difference?

This year’s Federal Budget was full of talk about one-off support for households in the form of tax offsets, but most people are a bit hazy on the difference between a tax offset and a tax deduction.

Both can help reduce the amount of tax you pay each year, but a tax offset generally results in a bigger dollar tax saving than a tax deduction of the same amount. The key difference is the point at which they are applied to your income when calculating the final amount of tax payable.

What is a tax deduction?

A tax deduction is one of the first things applied to your income when calculating your tax bill. It reduces your taxable income and hence the amount of tax you pay, potentially moving you into a lower tax bracket. Deductions are intended to ensure you only pay tax on income exceeding the costs associated with earning that income.

For a small business, deductions ensure it doesn’t pay tax if its running costs exceed its revenue. Common deductions include operating expenses such as stationery, and capital expenses such as equipment.

There are also temporary deductions, such as the additional 20 per cent deduction for costs related to digital adoption (like portable payment services and cyber security) and employee training expenditure announced in the 2022 Federal Budget.

Employees can claim deductions in a similar way. Personal deductions include work-related expenses like the cost of a computer if you have a home office, or supplies purchased for classroom use by a teacher. Other deductions include the cost of managing your tax affairs, donations and income protection insurance.

Offsets are similar but different

Tax offsets on the other hand, are deducted at the end of the calculation process and directly reduce the tax you pay.

Offsets are used by the government to encourage specific outcomes, such as uptake of health insurance through the Private Health Offset, or adding money to your spouse’s super through a contribution offset. They are also used to provide tax relief or financial support to certain groups in the community.

Calculating tax using offsets and deductions

The easiest way to understand the difference between an offset and a deduction is to walk through an example.

In the table below, we have two taxpayers. One person has an income of $30,000 a year paying tax of 19c on every dollar above the tax-free threshold of $18,200. This results in tax of $2,242 before any deductions or offsets. The other earns $130,000 a year, paying the top marginal tax rate of 37c in every dollar above $120,000, resulting in tax of $33,167.

As you can see in the table below, the impact of a $1,000 tax deduction provides a bigger tax saving of $370 for the higher income earner, compared with $190 for the lower income earner.

However, not only does a $1,000 tax offset provide both taxpayers with a bigger tax saving of $1,000 each, but it’s worth relatively more to the lower income earner at 3.3 per cent of $30,000 compared with less than one per cent of $130,000.

Impact of a $1,000 tax deduction and tax offset on tax owed

Assessable incomeTax owed$1,000 tax deduction$1,000 tax offset
Tax owedTax savedTax owedTax saved
$130,000$33,167$32,797$370$32,167$1,000
$30,000$2,242$2,052$190$1,242$1,000

Source (with updated figures for 2021-22 financial year): ANU Tax and Transfer Policy Institute Tax Fact #6

How tax offsets affect the tax you pay

Unlike tax deductions, the ATO automatically applies most offsets to your tax payable when you lodge your tax return.

In general, tax offsets can reduce your tax payable to zero, but they can’t be used to generate a tax refund if you don’t pay tax. If your taxable income is $18,200 or less, an offset won’t reduce the tax you pay as your tax payable is already zero. If you have paid any tax on this amount, you receive the tax back as a refund, but no offset is applied.

Also, most tax offsets don’t reduce the Medicare Levy and Medicare Levy Surcharge (if any) you are required to pay.

The amount of tax offset you receive also depends on the particular offset and your taxable income. For example, with the Low and Middle Income Tax Offset (LMITO) for 2021-22, if your taxable income is $37,0000 or less, you will receive a $675 offset on your tax payable when you lodge your tax return. If your income is $48,001 to $90,000, however, the offset is worth $1,500.

Making sure your deductions don’t get personal

It can be easy to overlook your personal use of business assets when it comes to completing your business and self managed super fund tax returns but be warned, the ATO is taking an interest in this area.

The ATO’s Small Business Random Enquiry Program found around 16 per cent of small businesses were either carelessly or deliberately overclaiming expenses in their tax returns.

If business assets are used for a mix of business and private use – such as vehicles and phones – the amount claimed must reflect only the business-related portion of the expense.

The ATO is urging taxpayers to remember this rule when claiming business-related deductions, including those for work-from-home expenses (such as internet and mobile phone usage), and work vehicles.

Rental properties under the spotlight

Holiday home rentals are also an area where many taxpayers are failing to follow the tax rules.

Deductions for holiday home expenses can only be claimed to the extent they relate to producing rental income, so you need to apportion your expenses if the property is only genuinely available for rent part of the year.

Apportionment is also required if you use the property for private purposes during the year, only use part of it to earn rent, or if it is used by family or friends at various times during the year.

Expenses relating solely to the rental of the property (such as agent commissions and advertising costs), don’t need to be apportioned.

Avoiding mistakes

To ensure you don’t invite attention from the ATO, review your treatment of business asset expenses annually, in case your private usage has changed.

New or additional private usage of the asset means you need to recalculate the percentage of business used to determine the correct deduction claim.

Proper business records explaining all relevant transactions (including payment to and receipts from employees, shareholders and associates) need to be kept to support your claims.

Common taxpayer errors

The ATO says there are some common errors when it comes to claiming deductions.

Taxpayers are not permitted to claim any deductions against business income for expenses relating to an asset entirely used for private purposes.

An example is an asset (such as a boat or plane) purchased and used for private purposes.

Deductions can only be claimed for the relevant percentage of business use. For example, if the private use component represents 60 per cent, only 40 per cent of the expense amount can be claimed in your return.

FBT and deemed dividends

Another common mistake is claiming a deduction for an asset giving rise to a deemed dividend. This arises when an asset is purchased through a company and used for private purposes by a company shareholder or their associates.

Under the tax rules, both the company and the dividend recipient must record such dividends in their income tax returns, as the asset is being used for their personal benefit.

Some small businesses also misunderstand the implications of purchasing an asset (such as a motor vehicle), that is used by an employee or the associate of an employee for personal purposes.

When this occurs, the benefit must be reported in the business’s fringe benefit tax (FBT) return and the resulting FBT liability paid.

Fixing lodgement mistakes

To avoid finding your business in the ATO’s spotlight, check you have correctly apportioned all expense claims before lodging your business or SMSF return.

You also need to consider whether the rules for private company benefits and FBT apply to any of your business assets. If you make a mistake with a deduction claim, you will need to amend or lodge an income tax or FBT return to correct your tax position. There are time limits on both business and super amendments.

We can help you to correct any mistakes and to deal with the ATO to ensure your tax reporting is smooth and worry-free.

Market movements and review video – December 2023

Stay up to date with what’s happened in markets and the Australian economy over the past month.

Consumer prices eased by more than expected in October. The news that inflation may have been tamed means interest rate rises may be behind us, for now.

Even the Organization for Economic Cooperation and Development (OECD) is optimistic about our economic recovery, predicting rate cuts from late 2024.

The ASX200 regained most of its October losses through November. Hopes the US may be ceasing its interest rate hikes impacted investor sentiment, as did the better than expected inflation figures locally.

Click the video below to view our update.

Please get in touch if you’d like assistance with your personal financial situation.

How super contributions and withdrawals are taxed

How much tax you pay on your super contributions and withdrawals depends on:

  • your total super amount
  • your age
  • the type of contribution or withdrawal you make

If you inherit someone’s super after they die, the person’s super fund pays you a super death benefit. You may have to pay tax on some of this benefit.

Because everyone’s situation is different, it’s always best to get advice about tax matters. Contact the Australian Taxation Office (ATO) or us.

How super contributions are taxed

Money paid into your super account by your employer is taxed at 15%. So are salary-sacrificed contributions, also known as concessional contributions.

There are some exceptions to this rule:

  • If you earn $37,000 or less, the tax is paid back into your super account through the low-income super tax offset (LISTO).
  • If your income and super contributions combined are more than $250,000, you pay Division 293 tax, an extra 15%.

If you make contributions from your after-tax income — known as non-concessional contributions — you don’t pay any contributions tax.

See tax on contributions on the ATO website for more information about how much tax you’ll pay on super contributions.

To avoid paying extra tax on your super, make sure you give your super fund your Tax File Number.

How super investment earnings are taxed

Earnings on investments within your super fund are taxed at 15%. This includes interest and dividends less any tax deductions or credits.

How super withdrawals are taxed

The amount of tax you pay depends on whether you withdraw your super as:

  • a super income stream, or
  • a lump sum

Everyone’s financial situation is unique, especially when it comes to tax. Make an informed decision. We recommend you speak to us to get financial advice before you decide to withdraw your super.

Super income stream

A super income stream is when you withdraw your money as small regular payments over a long period of time.

If you’re aged 60 or over, this income is usually tax-free.

If you’re under 60, you may pay tax on your super income stream.

Lump sum withdrawals

If you’re aged 60 or over and withdraw a lump sum:

  • You don’t pay any tax when you withdraw from a taxed super fund.
  • You may pay tax if you withdraw from an untaxed super fund, such as a public sector fund.

If you’re under age 60 and withdraw a lump sum:

  • You don’t pay tax if you withdraw up to the ‘low rate threshold’, currently $230,000.
  • If you withdraw an amount above the low rate threshold, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.

If you have not yet reached your preservation age:

  • You pay 22% (including the Medicare levy) or your marginal tax rate, whichever is lower.

See the super lump sum tax table on the ATO website for more detailed information.

When someone dies

When someone dies, their super is usually paid to their beneficiary. This is called a super death benefit.

If you’re a beneficiary, the amount of tax you pay on a death benefit depends on:

  • the tax-free and taxable components of the super
  • whether you’re a dependent for tax purposes
  • whether you take the benefit as an income stream or a lump sum

See super death benefits on the ATO website for detailed information or contact us today.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-super-works/tax-and-super
Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.
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Managing the costs of raising children

It is a special feeling to welcome a new child or grandchild into the world and watch them grow. Sharing their joy as they reach new milestones is priceless.

Of course, there is a real cost – raising a child is expensive, particularly now as the cost-of-living spirals higher. Estimates vary widely from the few studies completed but it is fair to say that over a child’s lifetime families can spend hundreds of thousands of dollars on living, medical and schooling expenses for their children.

So, having a financial strategy in place to cover the costs and taking advantage of government support where available can make a big difference.

Taking care of the basics

The first step is to update your Will to nominate guardians for your children in case the worst happens. You may also consider life insurance and income protection to ensure your family is protected.

Next, a savings and investment plan will help you navigate the years ahead with more certainty. Adding small amounts of money regularly to an account for education and other expenses can help to ease financial stress. The MoneySmart savings goals calculator shows what can be achieved. You could consider fee-free high interest savings accounts or your mortgage offset account as a way to save cash for short-term needs.

Meanwhile, some longer-term investments such as shares, exchange traded funds or listed investment companies may provide financial support for later expenses. They can offer the possibility of capital growth and diversification for a relatively low cost.

Super splitting

Keeping an eye on the future also means thinking about your superannuation. If one partner is staying at home to care for the children, the other partner can split their super contributions with them. You will need to check if your fund allows it, whether they charge a fee and complete some paperwork.

There are also some tax considerations, so it is important to make sure you understand the implications for you.

Government support

Take the time to discover the government payments and supports available for families. For example, the Paid Parental Leave Scheme provides support for mothers for up to three months before the birth.

A recent change to Parental Leave Pay and Dad and Partner Pay sees these two payments combine into one payment that is available to both parents for up to two years after the child’s birth.

You will need to meet income and work tests and claim within certain timelines.

Even if you are not eligible for parental leave pay, you may still be able to apply for both the Newborn Upfront Payment and the Newborn Supplement.

Then there is the Family Tax Benefit, a two-part payment to help with the cost of raising children. To receive the benefit, you must have a dependent child or a full-time secondary student aged 16 to 19 who is not receiving any other payment or benefit such as a youth allowance, care for the child at least 35 per cent of the time and meet an income test.

Grandparent gifting

Grandparents who are keen to help out their families financially can gift money to their children or grandchildren. Be aware that Centrelink has gifting rules for those receiving an age pension. You can give $10,000 in one year or up to $30,000 over five years without your pension being affected. If you give more, the amount will be treated as though you had retained it in your own accounts.

However, gifts and inheritances are generally not considered as income for tax purposes. The ATO says neither the donor nor the receiver will pay tax on a gift if:

  • it is a transfer of money or property.
  • the transfer is made voluntarily.
  • the donor does not expect anything in return.
  • the donor does not materially benefit.

Tax may apply in some cases where property or shares are gifted.

The joys of raising a little one are many, and having a plan to manage the financial implications can let you enjoy the journey. Get in touch with us to create a plan to secure your family’s future.

Salary sacrifice to cut tax and boost your super

This time of year, people’s thoughts start turning to their tax return, but it can also be a good time to set things up so you don’t pay more tax than required next financial year.

Simply talking to your employer about setting up an arrangement to “sacrifice” some of your pre-tax salary could potentially lower your tax bill – and boost your retirement nest-egg.

Reducing your tax bill

A salary sacrifice arrangement simply involves coming to an agreement with your employer to pay for everyday items or services you would normally pay for out of your after-tax salary directly from your before-tax salary. This might include things like childcare, health insurance or super. The benefit is that this reduces the level of income the ATO uses to calculate your tax bill.

If you set up a salary sacrifice arrangement with your employer, it’s important to understand that while your taxable income is lower, the benefits are still listed on your annual payment summary. For some people, this reduces the tax offsets, child support payments or other government benefits they receive, limiting the value of salary sacrifice.

Salary sacrificing options

The items or services you can pay for using salary sacrifice depends on your employer.

Some employers let their employees salary sacrifice for expenses such as cars, health insurance, school fees and home phones. Others are not prepared to do this, as they may end up paying Fringe Benefits Tax (FBT) on the benefits you receive.

Employers are usually more willing to allow you to package FBT-exempt work-related items such as portable electronic devices, computer software, protective clothing or tools of trade, as these generally don’t result in FBT bills.

Boost your super account

One of the most popular forms of salary sacrifice is redirecting some of your pre-tax salary into your super fund. Most companies are willing to provide this option as it not only helps you build retirement savings, but it can also earn them a tax deduction.

When you salary sacrifice into your super, your contributions are taxed at 15 per cent when your super fund receives the money. For most people this is a lower tax rate than if they received the money as normal income.

A further bonus with salary sacrificing into super is you only pay 15 per cent on any investment earnings you receive inside super, instead of your marginal tax rate for investments held outside super.

Find out what’s on offer

If you’re interested in a salary sacrifice arrangement, it’s a good idea to discuss the subject with your employer or HR team to find out the company’s policy.

It’s also a good idea to talk to us, as the value of these arrangements needs to be weighed up carefully against your reduced take-home pay and the potential loss of government benefits.

These arrangements should be put in writing before you earn the income you are sacrificing, so you need to talk to your employer prior to the start of the new financial year if your salary will change from 1 July.

Tips for employers

Allowing your employees to salary sacrifice can help them reduce their tax bill and it boosts engagement with your business. Another overlooked benefit is if your employee salary sacrifices into their super, you can claim a tax deduction for their contributions, as they are considered employer contributions.

To do this, you need to ensure you create an ‘effective’ salary sacrifice arrangement meeting the ATO’s guidelines. Otherwise the benefits your employee receives are considered part of their taxable income.

Effective arrangements require a clear agreement stating the terms and conditions and they must be documented in writing to avoid any uncertainty or future disputes.

Sacrifice arrangements can only apply to wage and salary payments for work yet to be performed, not past earnings. Salary and wages, leave entitlements, bonuses or commissions accrued prior to the arrangement cannot be used.

A simple way to avoid problems is to document your employees’ salary sacrifice arrangements before the start of a new financial year – or whenever there is a change to their salary – so it covers future earnings.

You need to keep detailed records of these arrangements for five years and list all sacrifice amounts on the employee’s annual payment summary.

If you would like help working out if a salary sacrifice arrangement makes sense for you, call our office today.

Why is ageing hard to talk about?

In life, many of us are totally at ease and comfortable talking to our family and friends about many topics. However, for whatever reason, there are certain subjects that we’re either reluctant or feel uneasy to discuss openly – typically they are love and relationships, politics, religion and money … call them the “taboo topics”.

Add another taboo topic to the list. That is the topic of ageing. As we age and reach our elderly years, asking for some help to do things to make life easier can be really hard to bring up in conversation.

When families get together, there are things we just notice but we’re reluctant to say anything. We notice that Dad might be starting to forget things or Mum is having difficulty getting out of her chair and seems a bit uneasy on her feet. Any attempt to say something is usually met either in silence or the words “I’m okay, just getting older” are uttered.

And for many families that’s where things are left.

Then there’s a crisis…

Families are then drawn together when there’s been a crisis such as a fall or a hospital admission. Then discussions and decisions are usually being made under high stress and emotion in hospital hallways and carparks. This is not an optimal starting point.

Making decisions and what’s the trade-off…

Like other life decisions, when it comes to ageing decisions, some are relatively simple to make with minimal consequences, whilst others can be very difficult.  When making decisions, there are usually “trade-offs” to be considered.

The impact of these trade-offs usually increases as the importance of the decision increases. Therefore, to make the best possible decision, it’s important to consider as many options as humanly possible.

So what needs to be thought about…

When it comes to ageing and getting some help there are usually many options to consider and everyone is different. For instance, when getting some help in the home, exactly what help is required and possible now and into the future, who will provide the help and at what cost? If moving into an aged care facility, what care will be required, where will the new home be, what to do with the family home, and how to pay for this are all decisions that need to be made and there are usually many options to consider.

So how do families identify these options and make appropriate decisions?

Where do you start? What questions do you ask and who to?  Are the answers you get back in your best interest … or someone else’s? What needs to be done and when? What happens if there’s a problem?

How Family Aged Care Advocates fit in…

That’s where Family Aged Care Advocates step in. We provide guidance and support to help families identify the relevant options to help you make informed decisions to get the best care outcomes for the people you love and care for most. We’re independent aged care specialists only interested in the right outcomes for your family … that’s all that matters and there’s no trade-off with that.

Material contained in this publication is a summary only and is based on information believed to be reliable and received from sources within the market. It is not the intention of RGM Financial Planners Pty Ltd ABN 36 419 582 Australian Financial Services Licence Number 229471, RGM Accountants & Advisors Pty Ltd ABN 69 528 723 510 that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. No representation is given, warranty made or responsibility taken as to the accuracy, timeliness or completeness of any information or recommendation contained in this publication and RGM and its related bodies corporate will not be liable to the reader in contract or tort (including for negligence) or otherwise for any loss or damage arising as a result of the reader relying on any such information or recommendation (except in so far as any statutory liability cannot be excluded).

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Maximising Tax Planning Opportunities for Established and Start-up Businesses in 2023

As we move towards the end of the 2022-2023 financial year, tax planning becomes a crucial part of any business’s success.

So, it’s never too early to start thinking about how to minimise your tax liability, and RGM is here to help you navigate the complexities of the Australian tax system.

Whether you’re an established business or a startup, there are strategies you should be discussing with your RGM advisor to ensure you’re taking advantage of all available tax planning opportunities.

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For Established Businesses

For established businesses, tax planning is about maximising profits and minimising tax liability. Here are some strategies you should consider discussing with your RGM accountant:

CGT Concessions

As an established business, it’s important to consider the Capital Gains Tax (CGT) concessions available to you. These concessions can help reduce the tax you owe on the sale of certain assets, which can have a significant impact on your financial success.

Small businesses in Australia can access specific CGT concessions, including the 15-year exemption, 50% active asset reduction, retirement exemption, rollover, and restructure rollover. By applying these concessions, you may be able to reduce your capital gain and potentially eliminate some or all the tax owed on the sale of assets.

However, the rules around these concessions are complex and can be costly if you get them wrong. That’s why we recommend seeking professional advice before restructuring or disposing of assets and ensuring your business structure is designed to take advantage of the available concessions.

At RGM, our team of qualified tax professionals can help you navigate the complexities of CGT concessions and advise on the most effective strategy to minimise your tax liability while complying with Australian tax laws and regulations. We can review your business’s financials and provide tailored advice to help you maximise the benefits of CGT concessions and position your business for long-term financial success.

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Instant Asset Write-off:

For established businesses, the Instant Asset Write-off can be a powerful tax planning strategy to help stay competitive in the market. This measure enables businesses to claim an immediate deduction for the full cost of newly acquired assets in the first year they are used or installed, rather than depreciating the cost over several years.

This can help free up cash flow, allowing you to invest in new equipment, technology, or other assets that can help grow your business and improve your bottom line.

It’s worth noting that this temporary full expensing measure is set to expire on June 30, 2023, so if you’re considering purchasing new assets, it’s important to act quickly to take advantage of this opportunity.

It’s also crucial to carefully assess your options and determine whether the Instant Asset Write-off is the right strategy for your business. Our team can help you identify whether this measure aligns with your business goals and needs, and ensure that you’re taking advantage of all the available tax planning opportunities.

Contact us today to discuss your business’s unique situation and how we can assist you in optimising your tax planning strategy.

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Loss Carry-back:

The loss carry-back strategy is a tax planning tool that can provide relief to established businesses facing financial difficulties. It allows businesses to offset losses incurred in the current financial year against profits made in the previous financial years, potentially resulting in a refund of taxes paid in those years.

This strategy can help businesses to manage cash flow and remain financially stable during challenging times such as we are currently seeing, economic downturns or changes in the market.

However, it’s important to be aware that utilising this strategy can reduce a company’s franking account balance, which may impact the ability to pay fully franked dividends to shareholders and affect investor confidence.

Before deciding to implement the loss carry-back strategy, it’s important to carefully consider the potential benefits and drawbacks and seek professional advice to ensure it aligns with your business goals and overall tax planning strategy.

Our team at RGM can provide expert advice and guidance tailored to your business needs and we encourage you to discuss any tax planning opportunities with us.

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Writing off bad debt:

Writing off bad debt is another tax planning strategy that can benefit established businesses in Australia.

When a business sells goods or services on credit and the customer fails to pay, the business may have to write off the debt as bad debt. By doing so, you can claim a tax deduction on the amount of the bad debt, which can reduce your taxable income and lower your tax liability.

For instance, let’s say that your business has a bad debt of $50,000 from a customer who failed to pay for goods or services delivered on credit. By writing off this bad debt, your business can claim a tax deduction of $50,000, which would reduce the taxable income and lower the tax liability for the financial year.

However, it’s important to note that there are strict rules and requirements around writing off bad debt for tax purposes, and businesses must ensure your meet these requirements to claim the tax deduction.

For example, the debt must be considered irrecoverable, and your business must have taken reasonable steps to recover the debt before writing it off.

At RGM, we can help established businesses navigate the complex rules and requirements around writing off bad debt for tax purposes. Our team can review your business’s financials and advise on the most effective way to write off bad debt and claim the tax deduction while ensuring compliance with Australian tax laws and regulations.

Contact us today to learn more.

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For Startup Businesses:

If you’re a startup business, tax planning is equally important. Our team can help you develop a comprehensive tax strategy that aligns with your unique needs and goals.

Some tax planning strategies that may be relevant for startups include:

Structuring your business:

Choosing the right business structure is one of the most important tax planning strategies for startup businesses. The structure you choose can have a significant impact on your tax liability, as well as your legal and financial obligations.

For example, setting up a businessas a sole trader may be the simplest and most cost-effective option, but it also means that you are personally liable for any debts the business incurs. Alternatively, incorporating your business as a company can provide more legal protection but may result in higher compliance costs.

Our team of experts can help you navigate the different business structures available and determine which one is the most tax-effective for your startup. This may involve assessing factors such as your business goals, the size and complexity of your business, your expected profits, and your personal financial situation.

Additionally, we can help you understand the ongoing tax obligations associated with your chosen structure, such as tax reporting requirements, compliance with regulations, and managing your tax liabilities. By having a clear understanding of your tax obligations, you can avoid costly penalties and ensure that your startup is positioned for success.

Contact our team today to discuss how we can help you choose the right business structure for your startup and minimise your tax liability.

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Research and Development (R&D) Tax Incentive:

In addition to choosing the right business structure, startups can also benefit from taking advantage of the Research and Development (R&D) Tax Incentive. This government program provides tax offsets for eligible R&D activities, which can be a crucial source of funding for startups looking to invest in innovation and growth.

To determine if your startup is eligible for the R&D Tax Incentive, our team can help you assess your R&D activities and expenses to ensure they meet the program’s eligibility criteria. We can also guide you through the application process to ensure you receive the maximum benefit available.

Our team can also provide ongoing support to ensure that you continue to meet the program’s requirements and maintain your eligibility over time. By taking advantage of the R&D Tax Incentive, your startup can potentially access significant funding to fuel your growth and innovation efforts.

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Claiming startup expenses:

As a startup business, you may have incurred significant expenses in setting up your business. These expenses can add up quickly and put a strain on cash flow, which is why it’s important to take advantage of any tax deductions available.

Our team of experts can help you identify which startup expenses are tax-deductible and how to claim them. This can include expenses associated with registering your business, such as ASIC fees, legal fees for setting up your business structure, and costs associated with obtaining any necessary licences or permits.

Other deductible startup expenses may include advertising and marketing costs, website development expenses, and expenses related to product development or research and development activities.

By properly claiming these startup expenses, you can potentially reduce your taxable income and minimise your tax liability.

Our team can work with you to ensure that you are taking advantage of all available deductions and claiming them correctly on your tax return. This can help to improve your cash flow and allow you to reinvest in your business.

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The importance of tax planning for businesses:

Overall, tax planning is essential for businesses as it can significantly impact your financial success.

By taking a proactive approach and seeking professional guidance where necessary, you can ensure that you’re taking advantage of all available tax deductions and concessions. This can result in improved cash flow, reduced tax liability, and increased profitability.

Businesses need to prioritise tax planning and work with qualified tax professionals to develop a comprehensive strategy that aligns with their unique needs and goals. By doing so, you can position yourself for long-term financial success and stability.

At RGM, we are committed to helping businesses of all sizes achieve their financial goals through effective tax planning strategies.

Whether you’re an established business or a startup, we have the expertise to help you navigate the complexities of the Australian tax system.

Start your tax planning today by booking a meeting with your RGM advisor.

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Crackdown on GST fraud

The ATO is cracking down hard on GST frauds after finding a significant number of taxpayers falsely claiming GST refunds.

The Serious Financial Crime Taskforce and Australian Federal Police (AFP) have executed numerous warrants against suspects, with a GST fraudster recently jailed for three years.

The ATO has warned it has zero tolerance for these types of fraud and has put in place a strategy to identify and pursue individuals suspected of inventing fake businesses to claim false refunds.

Falsely claiming a GST refund

GST refund fraud involves claiming a tax refund or other benefit by providing false information to the tax office.

In the recent spate of GST frauds, individuals have invented fake businesses and lodged a fraudulent Australian Business Number (ABN) application. They then submit fictitious business activity statements (BAS) in an attempt to gain a false GST refund.

Detailed information about how to undertake these types of frauds has been circulating as online advertising and content, particularly on social media.

Rules for claiming GST credits

It’s important to understand the rules in this area. Registering for an ABN and applying for GST refunds when you do not own or operate a business – or are ineligible – is fraud.

You can only claim GST credits on the business portion of a purchase and cannot claim GST on private expenses (such as food or entertainment). Discounted prices must be used when claiming GST credits, even if the discount does not appear on an invoice.

GST credits can be claimed upfront for purchases under hire purchase agreements entered into after 1 July 2012 only if your business accounts for GST on a cash basis.

Warning signs for GST fraud

The ATO has made it clear if you are not operating a business, you do not need an ABN and should not be lodging a GST return. The tax regulator has significant data matching capabilities enabling it to detect patterns in taxpayer behaviour that highlight potential tax frauds.

Backdating your business registration so you can apply for a refund is another red flag and will highlight you as a potential high risk in the tax office’s systems.

If you are caught

The ATO is urging anyone involved in a GST fraud to come forward on a voluntary basis, rather than face tougher consequences later.

If you are involved in a fake GST arrangement, the first step is to contact the ATO or your accountant so they can assist you to work through various self-help options. You may be able to correct your situation by revising your BAS, cancelling your ABN and GST registration, and setting up an arrangement to repay the GST refund.

Taxpayers caught engaging in GST fraud are liable to repay the entire fraudulently-obtained refund, regardless of whether they paid someone to lodge a BAS on their behalf. Making false declarations can also impact your eligibility for other government payments.

Fraud and compromised IDs

Selling or sharing your myGov credentials may result in other people accessing your personal information and using it for their financial gain.

If you have become involved in a GST fraud because your identity was compromised, you should contact the ATO immediately so additional controls can be placed on your tax account.

Taxpayers who have given their myGov details to a criminal should contact the ATO so it can assist them to protect their identity from being used to commit further crimes, including future tax crimes undertaken in their name.

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Tax Alert March 2023

Family trust rules and new guidance on contractors

The Australian Taxation Office (ATO) has confirmed its position on family trust distributions, while also providing employers with new information to simplify completion of Single Touch Payroll (STP) activity statements. Here are some of the latest developments in the world of tax.

Prefilling of PAYGW

Completion of PAYG withholding via STP will become easier for employers when the ATO begins prefilling some of the required activity statement data.

From the July 2023 statement, PAYG withholding labels W1 and W2 will be prefilled for all monthly PAYG employers. Quarterly withholders will find the information on their September 2023 statement.

The ATO is also piloting an employer reminder system for businesses with a late activity statement and STP-reported PAYG withholding. If you fail to lodge by the reminder date, the ATO will consider there are no corrections to report and the recorded amounts will be added to your client account.

Final rules on family trusts

Taxpayers with family trusts should check the implications of the ATO’s final guidance on the taxation of family trust payments, as the new rules may reduce the attractiveness of these tax structures.

Under the ATO’s new approach, common tax planning strategies relying on the section 100A exemption covering trust distributions to companies and family members may no longer be available in some situations.

Taxpayers with a discretionary trust should discuss the implications with us, particularly where there are parent controllers of the trust and adult-aged child beneficiaries. The ATO website provides a number of case studies outlining common situations.

Employees vs. independent contractors

The ATO is consulting on its new draft guidance covering both classification of employees and independent contractors, and its proposed compliance approach in this area.

The draft guidance outlines the regulator’s priority areas, which include situations where particular risk factors are present and where an unpaid superannuation query has been received from a worker.

The guidance also indicates employers must have specific advice from an appropriately qualified third-party confirming their classification of a worker as a contractor is correct.

Recordkeeping for self-education expenses eased

Taxpayers claiming self-education expenses will find things a little easier this tax time, as new legislation has removed the requirement to exclude the first $250 of deductions for education courses.

The new rules can be used when completing your 2022-23 tax return, while for employers, the change applies to the Fringe Benefits Tax year starting 1 April 2023.

Sharing economy reporting extended

Providers of ride-sourcing and short-term accommodation services will find themselves swept into the compulsory Taxable Payments Reporting System (TPRS) from 1 July 2023.

Electronic platform operators for these services (such as Uber and Airbnb) are required to report all transactions involving Australian purchasers under new legislation passed in December 2022.

Annual TPRS reporting is already compulsory in industries such as building and construction, cleaning, courier and security services.

Plug-in hybrid electric vehicles to face FBT

Under rules applying from 1 April 2025, plug-in hybrid electric vehicles will no longer be considered zero or low emissions vehicles and will not be eligible for the fringe benefits tax exemption applying to these vehicles.

You can apply for the exemption if the hybrid vehicle was exempt before 1 April 2025 and there is a financially binding commitment to continue providing private use of the vehicle after this date.

No business activity could mean no ABN

The ATO is again reminding small businesses their Australian Business Number (ABN) may be flagged for cancellation if there is no reported business activity in their tax return, or no signs of business activity in other lodgements or third-party information.

If an ABN is identified as inactive, the ATO will contact the holder by email, SMS or mail to check if the ABN is still required and explain the action required to keep it. Where the business is no longer operating, the ABN will be cancelled.

Source: Vanguard

https://corporate.vanguard.com/content/dam/corp/research/pdf/Cash-panickers-Coronavirus-market-volatility-US-CVMV_072020_online.pdf

Reproduced with permission of Vanguard Investments Australia Ltd

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