Tax Alert September 2022

With the tax regulator taking a more aggressive approach to tax debts and reviewing work from home deduction rules, tax issues could become a higher priority in 2022-23.

Here’s a roundup of some of the latest developments in the world of tax.


Consultation on working from home deductions

Taxpayers could face the prospect of new rules when it comes to claiming working from home deductions after the ATO announced it was undertaking a targeted consultation.

Now the temporary shortcut method for working from home deductions has ended (available 1 March 2020 to 30 June 2022), the ATO is currently refreshing its approach to the traditional fixed rate method of calculating work from home deductions.

The regulator is consulting tax practitioner representatives and expects discussions to be completed in October 2022, with any new rules for the current financial year to be announced after this.

Offsetting of tax debts resumes

After taking a lenient approach during the pandemic, the tax man has begun chasing outstanding tax debts by sending taxpayers letters reminding them about existing debts placed on hold.

During the 2022-23 financial year, the ATO will recommence offsetting tax refunds or credits to pay off a taxpayer’s existing tax debts.

In some cases, tax credits will also be used to pay off debts owed to other government agencies such as Centrelink.

JobMaker Hiring Credit open

The seventh claim period for JobMaker Hiring Credit payments is now open and will end on 31 October 2022.

The scheme allows businesses to claim the credit for up to a year for each eligible employee hired between 7 October 2020 and 6 October 2021.

Eligible employers can nominate additional eligible employees through their STP-enabled software and claim using ATO Online Services or their accountant.

ATO app for sole traders

The ATO is encouraging sole traders to download and use the ATO app for a more personalised experience when viewing their tax lodgments and payment due dates.

Did you know you can access the ATO app via our RGM app, if you don’t have our app you can download via the Apple Store – RGM app or Google Play – RGM app.

The app also allows sole traders to check the progress of their tax return, view their income tax and activity statement accounts, access transactions and payment plan details and make payments in ATO online.

Useful tools and calculators such as myDeductions and the Tax Withheld Calculator are also available, together with a Business Performance Check Tool allowing you to compare your business performance with others in your industry.

Thresholds for 2022-23 car claims

The maximum value for calculating depreciation on the business use of a car first used or leased during 2022–23 has increased to $64,741.

The car limit is indexed annually in line with CPI movements and represents the threshold limit on the cost you can use to work out depreciation on a passenger vehicle.

If you purchase a vehicle priced over the car limit, your maximum claimable GST credit is $5,885 in 2022-23.

From 1 July 2022, the luxury car tax (LCT) threshold has also increased. The new threshold for fuel efficient vehicles is $84,916 (up from $79,659) and for all other vehicles it increases to $71,849 (up from $69,152).

Crypto not taxed as foreign currency

The government has announced crypto currencies will continue to be excluded from foreign currency arrangements for tax purposes. Capital gains tax (CGT) will continue to apply to crypto assets held as investments.

The announcement will be backdated to 1 July 2021 to ensure a consistent tax requirement for crypto asset holders.

New rate for claiming car expenses

Taxpayers electing to use the cents per kilometre method when calculating work related car expenses in their income tax deductions have a new kilometre rate to use.

From 1 July 2022, a 78 cents per kilometre rate applies. This rate will remain in place in subsequent income years until varied by legislation.

Director ID reminder

The deadline is approaching for directors to apply for their director ID – a unique 15-digit identifier. If you need assistance with your Director ID please email or contact our office on 03 5120 1400.

From 1 November 2021 directors of all businesses, including directors of self-managed super fund (SMSF) corporate trustees, need a director ID. Anyone who was a director before that date has until 30 November 2022 to apply.

Directors appointed between 1 November 2021 and 4 April 2022 had to apply within 28 days of their appointment. From 5 April 2022, intending directors must apply before they are appointed.

If you need any questions in relation to our articles, please email or contact our office on 03 5120 1400.

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).

Liability limited by a scheme approved under Professional Standards Legislation.




Understanding CGT when you inherit

Receiving an inheritance is always welcome, but people often forget the tax man will take a keen interest in their good fortune.

When ownership of an asset is transferred, it triggers a capital gain or loss with potential tax implications. So what are the tax rules when you inherit a property, or another investment asset like shares, and when you eventually decide to sell?

Tax and your inheritance

The main tax applying to the transfer and sale of an asset is capital gains tax (CGT). This is added to your tax bill in the financial year in which you sell an asset acquired on or after 20 September 1985.

CGT is not a separate tax but forms part of your normal income tax and is imposed at your marginal tax rate. It applies to the sale of assets such as residential and investment properties, shares and managed funds.

The tax is calculated based on any increase in the value of the asset between the time you acquire or buy it and when you eventually sell.

Inheriting an asset

Fortunately, when someone dies, a capital gain or loss does not apply when an asset passes to the deceased person’s beneficiary, their executor, or from the executor to a beneficiary.

This means if you inherit a property, shares, or an interest in an investment asset, the capital gain on the asset is disregarded by the tax man.

There are also exemptions for personal use assets you inherit that were purchased for less than $10,000. This includes furniture, household items and the like.

Generally, CGT is not payable if you inherit collectables such as art, jewellery, stamps or antiques, provided their market value is $500 or less.

Selling your new asset

Although there is no CGT when you inherit a property, that’s not the end of it, as there may be a tax bill when you eventually sell. If the asset is a dwelling, special rules such as the main residence exemption apply in part or full.

Generally, if you sell an inherited property within two years of the person’s passing and it was either purchased before September 1985 or was the deceased’s main residence at the time or just before their death, and in most cases, not rented being at the time of their death, CGT does not apply.

The two-year period relates to the time from the date of death to the settlement – not exchange – of the sales contract. In some cases, it’s possible to apply to the ATO for an extension to this two-year period.

Special tax rules may also apply if the property was not the deceased’s main residence but it was purchased prior to 20 September 1985. This may result in a full or partial exemption from CGT, so it’s important to talk to us about your particular situation.

After the two-year deadline

If you decide to sell your inherited property after the two-year exemption period has elapsed, you will generally have to pay CGT on the capital gain on your property unless it has become your main residence.

The amount of CGT you pay is based on the increase in your property’s value from the date of the deceased’s death to the date of the sale.

When working out the capital gain on an inherited property asset, CGT is calculated based on the sale price less the cost base of the asset. In most cases, the cost base is equal to the market value of the asset at the date of the deceased’s death, although this will depend on when the home was purchased (before or after 20 September 1985).

If CGT applies when selling an asset, you normally receive a 50 per cent discount on the amount of tax payable if the asset is owned for over 12 months.

CGT is a complex area of taxation, especially as it applies to inheritance, so if you would like help with handling the tax matters relating to an inherited asset, contact our office today on 03 5120 1400 or click here to send through your enquiry and an adviser will be in contact.

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).

Liability limited by a scheme approved under Professional Standards Legislation.

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Tax Alert – December 2021

As COVID-19 turbulence starts to settle, the ATO is moving away from its supportive position and returning to its more usual compliance focus.

That means taxpayers need to be aware their financial affairs will come under renewed attention in the year ahead.

Data gathering programs increase

In recent months the ATO has announced programs to gather data on various aspects of Australians’ financial lives to use in its ongoing data-matching projects.

Recent programs include gathering data on property management and rental bonds, cryptocurrency, online selling and novated leases for the upcoming financial year (2022-23). The ATO will also be collecting data on payments made by government agencies such as Comcare, the Department of Health, the NDIA, Department of Veterans’ Affairs and the clean energy regulator.

Taxpayers who buy and insure high-value lifestyle assets will also be under the microscope, with the ATO looking to collect details that will “assist with profiling [to obtain] a holistic view of a taxpayer’s wealth”. Under this program, the taxman will be obtaining information from insurance companies for the period 2020-21 to 2022-23 about assets exceeding certain nominated thresholds.

These high-value assets include boats valued over $100,000, motor vehicles (including caravans) and thoroughbred horses valued over $65,000, fine art worth over $100,000 per item and aircraft valued over $150,000. Data obtained from insurers will include individual client identification and policy details.

Overseas gifts or loans under scrutiny

The ATO has also announced it will be increasing scrutiny of undeclared foreign gifts or loans from related overseas entities, including family and friends.

The regulator says it has encountered many situations where Australian taxpayers are deriving assessable income or capital gains offshore but failing to declare these in their income tax returns. The ATO will be looking at arrangements where taxpayers are attempting to avoid tax on foreign assessable income by disguising amounts as gifts or loans.

Anyone receiving genuine monetary gifts or loans should keep supporting documentation. Inheritances count as gifts, so if you receive an inheritance from overseas, get a certified copy of the person’s will or estate distribution statement.

Focus on working from home deductions

On a positive note, if you are still working from home due to COVID-19, you can continue using the shortcut method for claiming deductions until 30 June 2022.

From 1 July 2022, you will need to use either the traditional fixed rate or actual cost methods and meet their eligibility and recordkeeping requirements.

The ATO says it’s currently reviewing the 52 cents per hour fixed rate method to make it easier and simpler to use, given more people will be working from home in the longer term.

Backpacker tax under fire

Employers paying working holidaymakers will need to keep a close eye on developments in this area following a decision by the High Court that tax rates applied to these employees is discriminatory as it is based on nationality.

The decision could affect the applicability of the backpacker tax for workers from countries with double tax agreements with Australia. According to the ATO, this means working holidaymakers from Chile, Finland, Germany, Japan, Norway, Turkey, UK, Germany or Israel.

The ATO is currently considering the implications of the High Court decision and will provide further guidance for employers. In the meantime, employers should continue using the tax rates in the ATO’s published withholding tables for backpackers.

Self-education expense threshold to go

The government has made good on its May 2021 Budget promise to remove the $250 non-deductible threshold for claiming work-related self-education expenses.

The Treasury Laws Amendment (2021 Measures No.7) Bill 2021 is currently before Parliament. If passed, it will remove the current threshold for taxpayers claiming self-education expenses. It’s also expected to simplify the claims process in your annual tax return.

The start date for the change is likely to be 1 April or 1 July 2022.

Reminder on super stapling

If you are an employer, don’t forget to request super fund details from new employees, now the government’s super stapling rules are in place.

If a new employee doesn’t choose a super fund, you must request their stapled super fund from the ATO if they have one. This fund is linked to them and must be used for your Superannuation Guarantee (SG) contributions unless the employee requests otherwise.

If you would like help getting your tax affairs in order for the new year, contact our office today on 03 5120 1400 and speak to one of our tax accountants or send us a message via our contact page.

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).

Liability limited by a scheme approved under Professional Standards Legislation.




Turning Redundancy into opportunity

As the economy starts to recover from COVID-19 shutdowns, some sectors may take longer than others to return to their normal operating capacity and some companies may never fully recover. That means there is still the chance that some employees could be made redundant.

If you are offered redundancy, how can you turn a potentially bad situation into a new opportunity?

In the first instance, make sure that you negotiate a good redundancy settlement. By law you are entitled to a certain amount depending on your years of service with the company.i You may or may not come under an award, but the Fair Work ombudsman has a calculator so you can work out your entitlement.

You may even be able to negotiate an increased payment (a golden handshake) in order to keep confidential any specialist knowledge that you may have.

Your redundancy payment may include long service leave, holiday pay and sick leave, so it can be a sizeable amount and that creates opportunity.


How is it taxed?

But first, how much will you end up with after tax? There is a tax-free element for redundancy payments, calculated as a base amount (currently $10,989) plus a service amount ($5,496) multiplied by the numbers of years of service. So, if you have 10 years’ service, your tax-free amount is $65,949.ii

Any redundancy payment above this amount is your Employment Termination Payment (ETP) and subject to tax. If you are below your preservation age (the age at which you can access your super) you would pay 30 per cent plus the Medicare levy on this sum or 15 per cent plus Medicare if you are older than your preservation age. In both cases this tax rate applies up to $210,000 with the balance subject to 45 per cent tax plus Medicare regardless of your age.

So what should you do with this money? A large sum can present many opportunities although much will depend on your present circumstances such as how close you are to retirement and what your financial commitments are.

If you are hoping to find another job, assume this could take at least six months, so make sure you have sufficient funds.

Now is the time to take stock of your household budget and look at ways to reduce your overheads to control your immediate demands. For instance, you may look at selling your second car.

But don’t rush to cancel everything. Indeed, your income protection policy, for instance, could still play an important role. Before you act, ask your insurer if they would consider waiving the premiums for a few months. Just because you have lost your job, does not mean you will not be covered if something should preclude you from working in another job. You may well find you are still covered even if you are not currently employed.


Look to the future

Depending on your circumstances, you could consider using some of your redundancy payout to improve your overall financial situation. You could reduce your mortgage and other debts, or perhaps to make an investment or fund a business opportunity.

If you are approaching retirement age, then you might consider putting some of your redundancy pay into super. While this may still be a good idea if you are younger, remember you could be unemployed for longer than six months and you wouldn’t want your money locked in super until you reach preservation age.

If you are still expecting to have a few more years in the workforce, then take the time to seek professional help on your next move and think outside the square. So, rather than just find a similar position to the one you have lost in the same industry, look at widening your horizons. A professional career advisor can help. In many cases, employers provide such assistance as part of a redundancy package.

While redundancy can be confronting, if you think of it as a catalyst for change then you may find it’s one of the best things that has happened to you.

If you need any guidance please contact us to discuss how to make the most of your redundancy payment on 03 5120 1400.

https://www.fairwork.gov.au/ending-employment/redundancy/redundancy-pay-and-entitlements

ii https://www.ato.gov.au/business/your-workers/in-detail/taxation-of-termination-payments/?page=4

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 or RGM Finance Brokers Pty Ltd ABN 81 330 778 236 (RGM) 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).

Liability limited by a scheme approved under Professional Standards Legislation.


Contractor or Employee?

With COVID-19 having a significant impact on traditional employment, many people are working as a contractor for the first time either by choice or necessity. It’s not just a lifestyle decision; from the tax and superannuation perspective, there are important differences between being an employee and a contractor.

For employers, you also need to recognise the potential for the ATO to impose significant penalties for failing to meet your obligations for tax and super payments if you incorrectly categorise an employee as a contractor.

Contractor or employee?

Deciding if you are a contractor or an employee can be complex, but a key distinction is that an employee works in the business while an independent contractor runs his or her own business.

Contractors are self-employed and engaged to undertake a specific task at an agreed price, usually over a set period. They can choose their own hours and must pay for their own insurance, sick leave, holidays and super contributions.

Although COVID-19 has seen many employees working from home and claiming tax deductions for their home office running expenses, they remain an employee.

On the other hand, if you’ve been made redundant and have begun offering services to a range of businesses from your home office, you are likely to be a contractor.

How to tell an employee from a contractor

The table below outlines six factors that, taken together, determine whether a worker is an employee or contractor for tax and super purposes.

EmployeeContractor
The worker can’t delegate the work or pay someone else to do it.The worker can delegate the work or pay someone else to do the work.
The worker is paid for the time worked, at a price per item or activity, or via commission.The worker is paid for a result based on a quote, calculated using hourly rates or price per item to work out the total cost of the work.
The business provides all or most of the equipment, tools and other assets required to complete the work; or the worker provides them but the business provides an allowance or reimburses the cost.The worker provides all or most of the equipment, tools and other assets required to complete the work and doesn’t receive an allowance or reimbursement for this.
The worker takes no commercial risks; the business is legally responsible for the work and liable for the cost of rectifying any defects.The worker takes commercial risks, is legally responsible for their work and liable for the cost of rectifying any defects.
The business has the right to direct the way in which the worker does the work.The worker has freedom in the way the work is done, subject to the specific terms in any contract or agreement.
The worker is not operating independently of the business and is considered part of the business.The worker operates their business independently, performs services as specified in the agreement and is free to accept or refuse additional work.

Source: ATO website

Recognising a contracting arrangement

Even if you hold an Australian Business Number (ABN) or a registered business name, you are not automatically a contractor. Being paid after submitting an invoice makes no difference either.

The length of a project or how regular the work is are also immaterial to your employment status. Both employees and contractors can be used for casual, temporary, on-call or infrequent work.

Both employers and contractors can check whether a proposed work arrangement is legally deemed to be employment or a contract using the ATO’s Employee or contractor decision tool.

Avoiding tax and super responsibilities

Under current legislation it’s illegal to make misleading statements to an employee to try to persuade them to take on a contract arrangement. You are also not permitted to dismiss or threaten to dismiss an employee so you can re-hire them as a contractor.

Arranging for an employee to sign a formal document stating they are a contractor will not override the true employment relationship – or your tax and super obligations for them.

If you would like help understanding and complying with your tax and super obligations as either a contractor or employer, contact us today on 03 5120 1400.

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 or RGM Finance Brokers Pty Ltd ABN 81 330 778 236 (RGM) 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).

Liability limited by a scheme approved under Professional Standards Legislation.




Tax Alert December 2020

Although individuals and small business owners are now enjoying welcome tax relief in the wake of some valuable tax changes, there is more on the horizon as the government seeks to reboot the Australian economy. 

Here’s a quick roundup of significant developments in the world of tax. 

Temporary carry-back of tax losses

Previously profitable companies struggling with tough COVID-induced business conditions may find the government’s new tax loss carry-back provisions a useful tool to help keep their operation running. 

Businesses with a turnover of up to $5 billion can now generate a tax refund by offsetting tax losses against previous profits. 

Under the new measures, eligible companies can elect to carry-back tax losses incurred in 2019-20, 2020-21 and 2021-22 against profits made in 2018-19 or later years to gain a refund. 

Full expensing of capital purchases

Another valuable initiative is the introduction of a temporary tax incentive allowing the full cost of eligible capital assets to be written off in the year they are first used or installed ready for use. 

The measure applies from 6 October 2020 to 30 June 2022 and applies to new depreciable assets and improvements to existing assets. 

Small businesses with an annual turnover under $10 million can also use it for second-hand assets. 

Depreciation pool changes

From 6 October 2020, small businesses with a turnover under $10 million are allowed to deduct the balance of their simplified depreciation pool. This applies while full expensing is in place. 

The current provisions preventing small businesses from re-entering the simplified depreciation regime for five years also remain suspended. 

Early start to personal tax cuts

Individual taxpayers are now enjoying the next stage of the government’s tax plan, after the start date was brought forward to 1 July 2020. 

Under the Stage 2 changes, the low income tax offset increased from $445 to $700; the upper limit for the 19 per cent tax bracket moved from $37,000 to $45,000; and the upper limit for the 32.5 per cent bracket rose from $90,000 to $120,000. 

During 2020-21, there is also a one-year extension to the low and middle income tax offset, which is worth up to $1,080 for individuals and $2,160 for dual income couples. 

Shortcut for home expenses extended again

Employees using the shortcut method to calculate their working from home expenses can continue using it following the ATO’s decision to extend its end date again – this time until 31 December 2020. 

The ATO has updated its guidance on the shortcut measure and stated consideration will be given to a further extension. 

The shortcut method allows employees and business owners working from home between 1 March 2020 and 31 December 2020 to claim 80 cents per work hour for their running expenses. 

Additional small business tax concessions

Small businesses should also check out their eligibility for several tax concessions now the annual turnover threshold for them has been increased from $10 million to $50 million. 

From 1 April 2021, eligible businesses will be exempt from the 47% FBT on car parking and work-related portable devices (such as phones and laptops) provided to employees. 

Eligible business will also be able to access simplified trading stock rules, remit their PAYG instalments based on GDP adjusted notional tax and have a two-year amendment period for income tax assessments from 1 July 2021. 

Granny flats to be CGT exempt

Families considering building a granny flat on their property will benefit from the announcement of a new capital gains tax (CGT) exemption for granny flat arrangements. Although the exemption is yet to be legislated, the planned start date is 1 July 2021. 

The exemption will clarify that CGT does not apply to the creation, variation or termination of a formal written granny flat arrangement within families. CGT still applies to commercial rental arrangements. 

Refresh your ABN details

The ATO is reminding business taxpayers to keep their Australian Business Number (ABN) details updated so government agencies can identify business in affected areas during natural disasters. 

Incorrect details could see you miss out on valuable assistance or potential grants during and after a disaster. If you would like to discuss how we can assist you, please get in touch on 03 5120 1400.

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 or RGM Finance Brokers Pty Ltd ABN 81 330 778 236 (RGM) 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).

Liability limited by a scheme approved under Professional Standards Legislation.






WE are holding your refund letter

Have you recently seen an unexpected deposit in your Company bank account from the Australian Taxation Office (ATO)? Perhaps you have received a letter from them stating “We are holding your refund”.  Why has this happened?

ATO reduces some company rates for 2021 financial year

The Australian Taxation Office (ATO) has been amending Business Activity Statements (BAS) and Instalment Activity Statements (IAS) because the Company tax rate for a lot of Companies has reduced from 27.5% to 26% for the 2021 financial year.  The ATO initially used the higher income tax rate when calculating your Company income tax instalment for September and they are now correcting that.

We are holding your refund letter

If you receive(d) a “We are holding your refund letter” you have two options.  Firstly, to provide bank account details to the ATO for the refund to be paid or secondly, to allow the credit to remain on your account at the ATO and reduce the payment you make for your December BAS or IAS.

MyGov Account

For RGM clients only: If you don’t have a MyGov Account to add your bank account details with the ATO, please contact us and we can attend to that for you via the ATO Tax Agent Portal.  This will allow you to receive your refund rather than utilising the credit on your December BAS.

Clients of RGM who prepare their own Company BAS or IAS, and who choose to allow the credit to remain, are urged to contact us on 03 5120 1400 before payment for the December quarter is made to confirm the credit amount that can be used to reduce that payment.

As always, if you have any questions about this, or any other matter, we are here to help.

Granny flats: tax tips and traps

The idea of adding a granny flat to your property sounds like a great idea. A property to rent out to generate some welcome extra income, or a home for adult children or mum and dad in their later years.

But there are important tax and personal considerations to consider before taking the plunge and digging up the backyard. Although the Federal Budget proposed significant reform in this area (which we cover later in this article), important tax questions remain. 

Tax and granny flats: what you need to know

A granny flat is usually a self-contained secondary dwelling with a separate entrance, bathroom, kitchen and living space. 

Unlike an investment property, granny flats do not have a separate title and are built within the boundary of your existing property or attached to your home. A granny flat cannot be sold separately unless you subdivide the existing property title. 

Before you rush off to start building, you need to carefully consider the tax implications and get professional advice, or you could find yourself facing significant tax bills. 

For example, if you rent out your granny flat at commercial rates to a third party like a student, the rent will be assessable income and you will pay income tax on it at your marginal tax rate. You are, however, entitled to claim the normal deductions for depreciation against income from an investment property.i

Subdividing the property could also create a GST obligation, as the flat may be deemed a new residential property. 

Granny flats and capital gains

Under current legislation, the main tax issue when adding a granny flat is that it can create a capital gains tax (CGT) headache when it comes time to sell your home. CGT is payable on the difference in value between the time you bought the property and the time you sell. 

Normally, your main residence is exempt from CGT, but adding a granny flat can affect this. If you charge rent to a student living in your granny flat for example, you will lose some of your main residence exemption from CGT as the property is partly being used for income-producing purposes. 

When a family member lives in a granny flat and does not pay commercial rent, generally the main residence exemption still applies as the arrangement is deemed private or domestic. 

CGT and cash contributions

Things get more complicated if a relative provides a cash sum to help pay for the cost of building a granny flat in return for a right of occupancy for life or life interest. 

Under current tax laws, a cash sum paid by one party to build a granny flat is a CGT event. This means if your parent makes a financial contribution towards you building a flat to live in on your property, you will have a partial CGT liability to pay when you eventually sell your home. 

To make things worse, the normal 50 per cent discount on CGT for the disposal of an asset held for over 12 months may not be available

Potential for elder abuse

In many cases, concern about paying CGT means families fail to put formal agreements in place when a relative contributes to the cost of a granny flat. This leaves the family member with no protection if the relationship breaks down and creates the potential for financial abuse. 

The family member can also lose out financially if they need to move into an aged care facility, or if the homeowner needs to sell. 

It’s also worth noting that an interest in a granny flat can affect social security entitlements and aged care fees. 

Proposed Federal Budget exemption

To solve some of these issues, the October 2020 Federal Budget included a proposed CGT exemption for granny flats where a formal written agreement is in place. The new measure will be limited to arrangements covering family relationships and disabled children – not commercial rentals. 

Eligibility conditions for the new CGT exemption will depend on the legislation eventually being passed by Parliament. If passed, a start date is expected as early as 1 July 2021. 

If you are considering building a granny flat on your property, contact us today to discuss the potential tax implications. 

https://www.ato.gov.au/General/property/your-home/renting-out-part-or-all-of-your-home/

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