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GST margin scheme

The margin scheme is a way of working out the GST you must pay when you sell property as part of your business. The amount of GST normally paid on a property sale is equal to one-eleventh of the total sale price. If the margin scheme is used, the GST is calculated on the difference between the sale price and your purchase price of the property or the property’s value. You can only apply the margin scheme if the sale of the property is taxable.

When purchasing a new residential property with the margin scheme being apart of the property transaction, withhold 7% of the contract price, including GST and the market value of non-monetary consideration. This amount will then be paid to the ATO at settlement. The margin scheme is not an automatic concession and the sale must be eligible for it to be applied.

The margin scheme can be applied to subsequent property sales depending on the original date of purchase and how GST was applied at that time. Property purchases prior to 1 July 2000 are eligible, as the property had not been subject to GST previously. For property purchases after 1 July 2000, the margin scheme may only apply to a subsequent sale when:

There are limitations to the margin scheme in some situations such as; inheritances, the supplier being a member of a GST group or the property is GST-free (going concern or farmland). In these situations, if the supplier wasn’t eligible to use the margin scheme, the scheme cannot be used when selling the property.

Posted on 16 October '19, under tax. No Comments.

Breaking down business industry codes

A business industry code (BIC) is a five-digit code you include on relevant tax returns and schedules that describes your main business activity. BICs come from the Australian and New Zealand Standard Industrial Classification (ANZSIC) codes and are added to by the Australian Tax Office (ATO) for tax return reporting purposes.

Employers must use the correct business industry code on their tax returns to ensure their return is lodged in the right category. Using the correct code for your business helps to reduce the risk of being incorrectly targeted for compliance activities, avoids processing delays and ensures employers receive services and information relevant to their business type.

The business industry code describes the main activity of the business. This can change over time if your business diversifies its products and services. The code is broken down into sections:

Posted on 9 October '19, under tax. No Comments.

Claiming travel expenses relating to rental properties

When making a claim in regards to your residential rental property, there are specific circumstances for when you can and cannot claim travel expenses. The law about claiming travel expenses for rental properties changed in July 2017. In the last year alone, the ATO received more than 70,000 incorrect claims for travel to and from residential rental properties.

A residential property is defined as land or a building that is either occupied as a residence or intended for and capable of being occupied as a residence. Owning one or several rental properties is not usually considered to be in the business of letting rental properties, with receiving income from letting property to a tenant being considered a form of investment rather than a business.

Entities that can claim travel expenses are:

For those who are eligible to claim travel expenses, claims can be made on the following:

Posted on 30 September '19, under tax. No Comments.

Are you meeting the Active Asset Test?

To qualify for small business CGT concessions, an asset must meet the conditions of the Active Asset Test to apply. An asset is considered active when you own it and it is used or held ready for use in relation to a business. You can also have an intangible active asset if it is inherently connected with a business you carry on.

An active asset of yours has been held for a certain amount of time, based on how long you have owned the asset and the test period to meet the requirements of the Active Asset Test. The test period begins when you acquired the asset, and ends at the earlier of

Assets owned for over 15 years need to have been held for at least 7.5 years within the test period and assets owned for 15 years or less need to have been held for at least half of the test period to satisfy requirements.

When the assets are shares or trusts, passing this basic active asset test is not enough to qualify for CGT concessions. In addition, the asset will need to pass a further test, called the 90% test, to determine whether it is to be counted as an active asset or not. The test is satisfied if CGT concession stakeholders in the company or trust in which the shares or interest are held have a total small business percentage in the entity claiming the concession of at least 90%.

The periods in which the asset is active does not have to be continuous, however, they must total the minimum periods specified. An asset does not need to be active just before the CGT event.

Posted on 24 September '19, under tax. No Comments.

New industries included under TPAR 

The taxable payment reporting system (TPRS) has extended to further businesses that provide particular services and those that pay contractors to provide the service. The extension was approved on 1 July 2019.

Road freight services, information technology services and security, surveillance and investigation services will now have to lodge taxable payments annual report (TPAR), even if those services only make up part of the business. Contractors can include subcontractors, consultants and independent contractors.

For these businesses, the first TPAR will be due on 28 August 2020. This will be for payments that have been made to contractors in the 2019–20 financial year for providing the relevant services. Business owners will now need to keep records of contractor payments made from 1 July 2019.

Exemptions from TPRS reporting obligations apply if payments received are less than 10% of the entity’s GST turnover in the following industries:

Businesses that are not required to lodge should complete a TPAR Not Required to Lodge form for the ATO to update their records, preventing any unnecessary follow up.

Posted on 18 September '19, under tax. No Comments.

What is a CGT event?

Capital Gains Tax (CGT) events occur when an individual or company makes a capital gain or capital loss by selling or disposing of an asset they own. The timing of a CGT event is quite important, as it determines which income year an individual will report the capital gain or capital loss, and may affect how their tax liability is calculated.

CGT events can happen when:

When a CGT asset is disposed of, the CGT event usually takes place when a contract for disposal is entered into or when an individual is no longer the owner of the asset. Cases where a CGT asset is lost or destroyed, the CGT event will happen when the owner of the asset receives compensation for the loss/destruction or when the loss is discovered/when the destruction happened.

Posted on 10 September '19, under tax. No Comments.

Reestablishing lost or damaged records

Taxpayers are responsible for safely storing a written backup copy of their tax record in case the original electronic form becomes inaccessible or unreadable. In the event that your records have been damaged or destroyed, there are a number of ways you can reconstruct them.

Where the tax records are accidentally lost or destroyed from a burglary or fire, the ATO will allow a taxpayer to claim a deduction for certain expenses, provided that:

The ATO holds and can re-issue or supply copies of tax documents, such as:

If you have lost your TFN, you can still access your tax information by phoning the ATO. They will allow for other information to verify identity, such as an individual’s date of birth, address or bank account details.

If you are unable to substantiate claims made in your tax returns or activity statements because records have been lost or destroyed, the ATO can accept the claim without substantiation, where it is not reasonably possible to obtain the original documents.

Posted on 3 September '19, under tax. No Comments.

Non-compliant payments to workers no longer tax deductible

Businesses can no longer claim deductions for payments to workers if they have not met their pay as you go (PAYG) withholding obligations. This applies to income tax returns lodged for the 2020 income year onwards. Any payments made to a worker where PAYG amounts haven’t been withheld or reported are called non-compliant payments.

If PAYG withholding rules require an amount to be withheld, businesses will need to:

Businesses will not lose their deduction if they:

Businesses will only lose their deduction if no amount is withheld or reported to the ATO unless voluntarily disclosed before the ATO examine their affairs. Businesses that don’t comply with PAYG withholding and reporting obligations may lose the deduction for that payment and face penalties that apply for failure to withhold and report amounts under the PAYG withholding system.

Posted on 28 August '19, under tax. No Comments.

FBT car parking threshold changes

The ATO has released the Taxation Determination 2019/9, which outlines changes to the fringe benefits tax (FBT) car parking threshold.

The car parking threshold for the year commencing on 1 April 2019 is $8.95. This replaces the amount of $8.83 which applied to the FBT year ended 31 March 2019. The increase has been set by adjusting the previous year amount by a factor equivalent to the movement in the Consumer Price Index (1.3%).

Section 39A of the Fringe Benefits Tax Assessment Act 1986, sets out a number of conditions that must be met before car parking facilities provided by an employer to their employees will be subject to FBT. These conditions include:

There are circumstances where car parking benefits are exempt from FBT. These exemptions may apply to:

Posted on 19 August '19, under tax. No Comments.

New ATO toolkit helps small businesses get expenses right

The ATO has developed a new toolkit that helps small business owners to understand their entitlements and avoid mistakes in their tax returns.

The 2019 Tax Time Toolkit Small Business covers information about:

These toolkits are designed to highlight areas that small businesses may struggle with at tax time. Subjects include:

One of the factsheets, in particular, provides options and support for employers using STP. Some of the important topics outlined in the fact sheet include:

As it is common for there to be confusion around these topics, taking the time to understand your obligations as a business owner can streamline the returns process and help to ensure correct reporting.

Posted on 12 August '19, under tax. No Comments.

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