Blog

Government to cap self-education deductions at $2,000

Fri, 03 May 2013 06:22:00 GMT

The Government has just announced a swathe of budget cuts and one item on the chopping block is self-education tax deductions.

What is that? You are allowed to claim a tax deduction for any costs you incur in relation to your 'self-education' as long as it directly relates to your current income earning activities. Example: an accountant attends accountant training - bingo, tax deduction. Read more here.

The proposed cuts mean that any self-education deductions will now be limited to $2,000 per year. Anything over this threshold will not be an allowable tax deduction. This new measure is proposed to begin 1 July 2014 so it will affect the 2015 tax year and onwards.

Presumably this will hit Masters students the hardest with an average unit of study costing in between $3,000 and $4,000 and an average Masters degree consisting of 8 units. So, for someone on $100,000 doing two units of study at a time (aiming to complete a Masters in 2 years whilst working) they would have been able to claim a tax deduction of around $16,000 which could yield tax savings of around $5,000. Under the new proposal the deduction will be limited to $2,000 and will only result in a tax saving of $600.

Expect to hear a lot of arguments against this new budget cut from the higher education and training institutions.

You can read more here and here.

Super goes up to 9.25% That's good for me, right?

Wed, 24 Apr 2013 03:03:00 GMT

You will have no doubt heard the advertisements talking about the benefits of the recently legislated increases to the superannuation guarantee - from 9% to 9.25% - on 1 July 2013. The government has set plans in motion to increase the superannuation guarantee from 9% all the way up to 12% by 1 July 2019 (see here) with this 0.25% increase being the first step.

What is the superannuation guarantee? This is the rate at which employers must contribute on behalf of their employees. The rate refers to a percentage of gross salary (i.e. cash plus tax withheld).

Current advertisements talk about the government enabling people to be better provided for in retirement and this legislation will make this so, however, it conveniently side-steps an important question, where does this extra money come from?

Where these extra superannuation contributions will come from will depend on your relevant employment contract. A standard employment contract remuneration clause might look something like this:

We use the total remuneration approach for packaging salaries and benefits. Your initial total remuneration of $XX,XXX will include the following mandatory components: cash remuneration, and the required level of superannuation contributions under the current Government Superannuation Guarantee Charge (SGC) legislation.

If it is like this one, or mentions 'total package', you will probably find that the extra superannuation being paid will come out of your total salary package. What does that mean? It means your salary (i.e. cash plus tax withheld) will be reduced by the increase in superannuation contributions.

If, however, your salary is not discussed in terms of package, rather it is '$XX,XXX plus superannuation', then you shouldn't notice any difference in your pay as the additional amount is being funded by the employer and has, in effect, increased your overall salary package. That said, I would not be surprised if employment contracts around the country are currently being reviewed so that employers can avoid this very issue.

So, whilst the Government's claims are true - you will have more in retirement - they conveniently ignore who is funding it. I'm sure if the ad said "We are taking some of your wages and forcing you to put it into super" it wouldn't have quite the same appeal.

Structures part 3 - The Company

Fri, 05 Apr 2013 05:36:00 GMT

What is a company? A company is a legal entity distinct from those who may own or run it. It has it's affairs managed by directors and is owned by shareholders. A shareholder's liability is limited to any amounts that may be unpaid for their shares. Without considering misconduct, a director's liability will generally be limited to any unpaid employee entitlements (i.e. superannuation and PAYG withholding) there may be.

Set up procedure

Incorporate a new company
Register for ABN
Register for TFN
Register for GST (if applicable)
Register for PAYG–W (if applicable)
Set up a company bank account and put in place suitable bookkeeping procedures

Advantages

Limited liability
Corporate tax rate lower than the top individual marginal rate (30% vs 46.5%)
Flexible in distribution of income, with some restrictions in case of Personnel Services Income entities
Tax paid by company is credited to shareholders when profits are paid out via dividends
Superannuation contributions deductible up to age base limits

Disadvantages

Cost of establishing and maintaining is higher than that of a sole trader or partnership
Director’s potential liability in case of negligence or insolvent trading
Compulsory Workers Compensation on wages drawn
Superannuation contributions are required on wages drawn
Losses cannot be distributed to shareholders
More compliance issues — accounting standards, ATO, and ASIC
Capital gains are not concessionally taxed

Compliance requirements

ABN registration — compulsory
Tax File Number registration — compulsory
GST registration — compulsory if turnover is over $75,000 (registration is voluntary if less)
BAS — monthly or quarterly (if GST registered)
Tax Return — annually
Financial records — financial accounts (i.e. balance sheet and profit and loss) in required format
ASIC annual return yearly and other changes (eg. address changes, director changes, etc)

General comments

This is a popular structure and a natural progression for people running a business where there are third party contractual arrangements including employees. The structure provides asset protection and allows for effective tax planning, but has strong, and sometimes complex, compliance issues.

One key issue for people in creative, service-based, industries to consider is the interaction of the Personal Services Income provisions with Part IVA (which is the general anti-avoidance provision). What does this mean for me? If you are planning on setting up a company to earn income from the provision of your personal services and then use the company to shelter the tax you pay at the corporate rate, or use the company to 'income split' with your spouse, then you may fall foul of the ATO and end up having the income all taxed in your own name anyway.

The above is a general guide only and pertains to proprietary limited companies only. If you have any specific questions or concerns regarding your specific circumstances please contact your accountant.

Planet Of Sound

Sun, 17 Mar 2013 13:00:00 GMT

Inertia knows good music. Inertia have opened an online music store. Planet Of Sound. Enough said.

Getting the most out of Government funding programs

Thu, 14 Mar 2013 13:00:00 GMT

Applying for funding? Unsure of what is involved? Have a look here for some handy advice.

Can I get an ABN? Am I a contractor?

Thu, 07 Mar 2013 13:00:00 GMT

The ATO are tightening up the legislation around who can be legitimately issued with an ABN. They are taking a two pronged approach to this – firstly, by making it more difficult to obtain an ABN in the first place, and secondly, by auditing those with ABNs and cancelling inactive ABNs.

Why would they want to do this? ABN income is difficult for the ATO to track. Businesses who pay contractors simply claim a deduction for what is paid to the contractor and that is, usually, the extent of their reporting requirements. This means the ATO doesn’t know how much a contractor has earned in any given tax year. However, if the contractor were to become an employee, the employer would be required to not only withhold tax and pay superannuation, but they would report all of this to the ATO each year. This means the ATO has a complete record of what the individual earned that year.

Therefore, anyone who the ATO can shift from being a contractor to an employee is one more person the ATO can more accurately track to ensure they are paying the correct amount of tax.

The new ABN application process articulates the ATO’s position on contractors and what deems them to be legitimate and therefore entitled to an ABN. The ATO states that a contractor is an entity (individual, partnership, trust, or company) that agrees to produce a designated result for an agreed price. In most cases an independent contractor:

is paid for results achieved
provides all, or most, of the necessary materials and equipment to complete the work
is free to delegate or subcontract work to other entities
has freedom in the way the work is done
provides services to the general public and other businesses
is free to accept or refuse work
is in a position to make a profit or a loss
bears legal risk in respect of the work
must remedy any defective work at their own expense
has their own liability insurance

The ATO then goes on to ask four questions, three of which are of particular importance, because without a positive response to each, you will be denied the ABN as the ATO does not deem you to be a contractor.

1. Will your work agreement allow you to pay another person to perform work on your behalf?
2. Will the payments you receive be based on a quoted price that you provide to persons making use of your services?
3. Will you be responsible for the cost of rectifying any defect in the work you perform?

Now, what if it turns out you are not eligible for an ABN, what then? Well, it would mean that you should really be an employee. What if the business you are dealing with doesn’t want to deal with you as an employee? The onus is on the payer to comply with the relevant legislation and it might be worthwhile reminding them of this. If the ATO finds out that a payer is not complying they may find themselves the subject of an audit covering employees, superannuation, workers compensation insurance, payroll tax, and more.

Please feel free to contact the office if you’d like to discuss this further.

Structures part 2 - The Partnership

Thu, 28 Feb 2013 13:00:00 GMT

Not simply the domain of hotshot lawyers, a partnership is a simple and effective tax structure to operate a business with one or more other people.

A partnership is not a separate legal entity, rather it is simply an arrangement between people to earn income jointly. The tax legislation defines a partnership as either (a) as an association of persons carrying on a business with a view to profit, or (b) a situation where two or more people are in receipt of income jointly. This second definition would include jointly owned bank accounts, shares, and real property, however there is an ATO concession which means these types of partnerships don't need to lodge a separate tax return, rather the income is directly dealt with at an individual tax return level.

Is it generally a good idea to get a legal document drawn up (known as a partnership agreement) that outlines the relationship you will have with your business partner/s in case of any legal dramas further down the track. With such an agreement in place your partnership would be considered a 'general law partnership' (i.e. a partnership under the relevant state Partnership Act) and you can have a bit of flexibility when it comes to splitting income between the partners, rather than it having to be split equally as with other partnerships.

What are the advantages of using a partnership?

Free to establish - just need to register with the ATO (TFN, ABN, GST, etc.).
Simplicity - income and expenses are pooled, the net profit is then passed out to the individuals and they pay their respective taxes.
Ongoing fees - typically accounting fees for a partnership are less than those for a company or a trust for example.
Income splitting between the partners.
Partnership agreement can provide some degree of flexibility with regards to the income splits between the partners.

Sounds great, but what are the negatives?

Partners are jointly and severally liable - this means that any single partner can enter into a deal or incur debt on behalf of the partnership, and therefore, on behalf of other partners. An example of this sort of situation going bad would be partner A entering into an expensive lease agreement and then going bankrupt, leaving partner B wholly liable to meet the payments.
A partnership structure, generally speaking, provides no asset protection.
Tax can be higher than under a company because there is no way of sheltering income - the entire net profit must be distributed to the partners each year which can result in the partners paying tax rates above 30%, something that can be avoided if a company structure is used.
Partner joins or leaves? This will mean the old/existing partnership ends and a new one forms. So, unless this conveniently occurs on 30 June you will need to prepare (and pay for) two sets of financial statements and two income tax returns for that year.

What is a joint venture? Be careful not to confuse a partnership with a joint venture, or JV. If you are in a partnership you must share the income jointly, whereas in a JV the income and deductions are accounted for separately by each of the JV partners. There is no useful definition of JV available, but they are typically project and/or output based (e.g. a mining company forms a JV with a farmer who has land they want to mine for a particular mineral for a particular length of time).

There is some more information on partnerships available in the AMIN Tax Guide For Musicians, which can be found here.

As always, the above is intended as a general guide. Speak with your accountant for advice specific to your situation.

New SBE depreciation rules (from 1 July 2012)

Thu, 21 Feb 2013 13:00:00 GMT

As we've mentioned before, the most recent Budget brought in some great small business friendly measures to help accelerate deductions in relation to the acquisition of new assets. These rules all took affect on 1 July 2012. What were those again?

Immediate deduction for assets up to $6,500 (up from $1,000)
Immediate deduction for the first $5,000 on motor vehicles purchased with the balance being subject to the regular SBE rules (i.e. 15% deduction in year one and 30% every year after)
When the general SBE pool balance gets below $6,500 you can write the whole thing of as an immediate deduction. This will benefit many small businesses during the first year of operation for these new rules (being 2013)

If you have any questions specific to your situation, please contact your accountant.

Free workshop! “In the Studio: Producers Speak”

Thu, 14 Feb 2013 20:53:00 GMT

MusicNSW is excited to announce our first free workshop of 2013, taking place on Wednesday 6 March. With countless accolades and a few pointy trophies between them, four of Australia’s leading producers will share their expertise in a panel titled “In The Studio: Producers Speak”. This workshop will cover everything an artist or audio boffin needs to know about making a record – plus a few juicy anecdotes too.

MusicNSW is the peak industry body for contemporary music in NSW. Each free workshop focuses on a different topic, and is presented by real-world music industry insiders, with the aim to equip emerging artists, managers, and professional hopefuls with valuable info and skills to get a head-start in their career.

Panelists for “In The Studio: Producers Speak” include:

Scott Horscroft: Studio owner, A&R executive, ARIA winner and manager, Scott’s laid down tracks with Birds Of Tokyo, Gold Fields, 360, The Presets, Silverchair + more

Lachlan Mitchell: From PNAU to Nunchukka Superfly: Lachlan landed two ARIA noms for his recording of ARIA’s 2012 Best Independent Release – The Jezabels’ Prisoner

Jean-Paul ‘JP’ Fung: You’ll find him in the studio recording for TV show “The Voice” or laying down bands like Jinja Safari, Last Dinosaurs, Glass Towers and Andy Bull

Owen Penglis: Frontman of Sydney’s Straight Arrows, Owen recently recorded the excellent compilation Nuggets: Antipodean Interpolations of the First Psychedelic Era

Topics include:

How to get the most from your recording budget
Pros and cons: doing it DIY style vs the studio
The nitty gritty: agreements, producer points + more

When: Wednesday 6 March, 6.30pm

Where: The Standard – 3/383 Bourke St, Darlinghurst

How much: Free! Simply register by emailing samantha@musicnsw.com

Can I claim for grooming & clothing? I'm an actor!

Sun, 10 Feb 2013 21:59:00 GMT

There was a tax ruling issued in June 1995 that outlined myriad expenses that are commonly claimed, or at least are attempted to be claimed, by employee performing artists. I'll go over a few of the ones we are commonly asked about here at the office. The key thing to remember here is that the ATO will allow a tax deduction if there is a direct connection, or "nexus", between the income you're earning and the expense you want to claim.

Grooming - this would include hairdressing, makeup, beauty treatments, etc. A deduction is generally not available for items of this nature. There are, however, exceptions. "A deduction is allowable for the cost of a particular hairstyle for a role. The cost of maintaining a particular style or length of hair as part of a costume for purposes of continuity, is an allowable deduction. Similarly, a deduction is allowable for the cost of make-up, including cleansing materials to remove stage make-up." Note that simply maintaining a "well groomed image to the public" is not sufficient to claim a deduction.

Gym & fitness - "a deduction is not allowable for the costs of maintaining general fitness or body shape. A deduction may be allowable if a performing artist can show that physical fitness and physical activity are essential elements of the income-earning activities and are the means by which the performing artist earns income." What this means in practice is that claiming these costs will depend on the physicality of your work - general acting work will be a no, but stunt people, or trapeze artists, would probably be okay.

Clothing - this is a big one and quite misunderstood. Generally speaking, you can only claim for stage costumes. You cannot claim for maintaining a 'look' or for award night outfits. "A deduction is not allowable for the cost of purchasing a range of conventional clothing which might be used for stage or film work. As there is no connection with income-earning activities when the clothing is purchased it is a private expense." We cannot take an arbitrary percentage of all clothes purchased and say they were for a role. To make a claim you'll need to have bought the item specifically for a job and for it to not be used privately. Example: the wigs in Marie Antoinette would be fine, however the ubiquitous black jeans worn by 99% of bands would not.

If you'd like more detailed information regarding the above, or other artist deductions, please have a read of TR 95/20 yourself, or get in touch with your accountant.

The above is a general guide only and does not constitute advice. If in doubt, with your accountant.

Meetings at cafes

Thu, 17 Jan 2013 02:07:00 GMT

Can you claim a tax deduction for the cost of holding a business meeting at a cafe? No*

Businesses are able to provide light refreshments at meetings held on their business premises and claim a deduction for the cost of these refreshments (refer to IT 2675). This is because the ATO considers this not to be meal entertainment. What if you do not have a business premises to provide these refreshments? Can you take a client to your local cafe to buy the same refreshments and claim a deduction? Sadly, the answer is no.

The ATO considers any meal & drink consumed at a cafe to take on the character of entertainment. Why? To quote the ATO directly: "The food or drink may not provide entertainment in itself depending on the extent of the meal, but it is the setting in which it is consumed that turns the food or drink into the provision of entertainment. That is, entertainment is provided by way of food or drink, in a social situation at a cafe, despite business discussions taking place."

What if you do not have a space suitable, or any space at all, to hold meetings? The ATO went on to say: "The fact that there are limited facilities at your business premises for meeting clients does not change the character of entertainment by way of food or drink. This is also the case where there are no business premises."

*Please note the above was largely referring to a Private Ruling obtained in relation to a sole trader, however the principles apply to all taxpayers. The bottom line is that if you provide meals at a cafe for clients their component will not be deductible. Any meals provided to employees at a cafe will be considered meal entertainment and will fall under Fringe Benefits Tax legislation.

As always, the above is to be used as a guide only and if you have any questions specific to your situation, please contact your accountant.

Tis the season

Thu, 20 Dec 2012 01:00:00 GMT

Broken air-conditioning and a slight easing in Sydney traffic - it must be the holiday season. Please be advised that Moneypenny will be operating on a skeleton crew from Friday 21st at midday until January 2nd.

Wishing you all the best for this silliest of seasons.

An American Accountant Down Under

Wed, 19 Dec 2012 04:47:00 GMT

We have recently had the pleasure of doing some work with a new arrival to our shores - Mr John Griffin. John has extensive experience in the United States working in tax law and is available to take consultations with anyone considering working in the United States requiring pertinent tax advice. He is currently based out of Newtown in Sydney, NSW.

Too often the tax consequences of working abroad are considered after a taxpayer has already left Australia, or in some cases not at all. It is prudent to seek advice before you depart to ensure all of your taxation chickens are in a row.

"After getting seduced by the dark side of tax during law school, John spent six years focused on the study of taxation earning a Masters and Doctorate. He then practiced at Deloitte and Touche and KPMG before venturing out on his own. He spent ten years advising individuals and business enterprises on U.S. Federal, state, and foreign taxation. He seems to show and undue excitement for the complexities of multi-jurisdictional taxation. In his spare time he competes in open water swimming events around Sydney and refines his pie baking abilities. He is available to advise foreign tax residents coming to Australia and Australian residents with foreign tax issues."

Please feel free to contact John direct at: john.griffin.aus(at)gmail.com

Structures part 1 - The Sole Trader

Fri, 07 Dec 2012 05:13:00 GMT

It is important to carefully consider your options when selecting which structure to use for your business operations. The following guide is intended to get you thinking about the relevant issues and are by no means exhaustive. This first instalment is about the humble sole trader option.

Sole trader

A person who wishes to start a business can simply trade under their own name. This is known as being a 'sole trader' and is the simplest of business structures. All taxable income & deductible expenses for the business will go in the section ‘Net income or loss from business’ in your individual tax return.

Set up Procedure

Advantages

Simple
Minimal compliance
Lower maintenance costs
Capital gains tax discounts
Total control of assets
No set–up costs

Disadvantages

No asset protection — individual person is liable
The structure has limited life as on the death of the individual the investment must change hands
Taxed at your marginal rates
Inflexible tax planning
Restrictions on superannuation contributions. First $25,000 is deductible assuming less than 10% of taxable income comes from being an employee. Must notify your fund that you are intending to claim a tax deduction.

Compliance Requirements

ABN registration — compulsory
GST registration — compulsory if turnover is over $75,000 (registration is voluntary if less)
PAYGW registration — compulsory if you have employees
BAS — monthly or quarterly (if GST registered and depends on turnover and level of PAYGW)
Tax Return — yearly
Financial Records — you are required to keep financial records pertaining to your tax returns for five years from the date of lodgement.

General Comments
This type of structure is suitable for someone with little or no assets and is just starting out in business with little turnover. The income tax is either paid at the end of the year after lodgement of tax returns or paid through an Instalment Activity Statement (IAS) during the year and an adjustment at the end. Tax is paid on net profit, not what you draw out of the business. Equipment, public liability and other indemnity type insurance is recommended.

SMSF levy imposed by ATO set to increase

Wed, 05 Dec 2012 01:47:00 GMT

The ATO have announced they will be increasing the annual SMSF levy imposed on all self-managed superannuation funds from 2013 citing 'costs of regulation' not currently being met.

The levy will be as follows:

2011-12 $150
2012-13 $191
2013-14 $259

Better start saving!