faq
 

TAX TIPS

13). What if I cannot pay my tax on time?

14). What is an individual’s 2015 tax rate?

15). What is an individual’s 2016 tax rate?

16). Can you give me an example of how much savings from 2009 to 2010 tax year?

17). What about Low Income Tax Offset (LITO) changes?

18). What are Super co-contribution thresholds?

19). What are Super Fund Tax rates?

20). Our business has turn over of less than 2 million dollars, are we qualified for government tax break of 50% deductions if we buy depreciable assets by 31December 2009?

21). Our business has turn over of greater than 2 million dollars, what are the government tax break deductions for us?

22). Is the same-sex relationships tax treatment changed? When?

23). Has the foreign income tax offset rules changed?

24). How much can I contribute to my super as non-concessional contribution?

25). Are there any new GST Ruling (GSTR) on Margin Scheme?

26). I earned less than $11,000 gross income in 2008, can I get the government $900 tax bonus?

27). I earned greater than $11,000 but less than $80,000 gross income in 2008 and I paid my tax, can I get the government $900 tax bonus?

28). Can I get my $900 tax bonus for filing my 2009 tax return?

29). For negative gearing purpose, is there a limit on how much interest can be claimed?

30). How many rental property can I have for negative gearing purpose?

31). Can you give me an example of how negative gearing works?

32). How can I get a 100% deduction on my interest?

33). Can I borrow or lend money to myself to get any tax benefit?

34). Is negative gearing always good for businesses such as trusts and companies?

35). Where my trust has net income after deductions, can the negative gearing work in favour of me as a taxpayer?

36).Does the main or principal residence exemption for family homes extend to homes owned by trusts or companies?

37). How can I claim losses from non-commercial business activities?

38). What are the 4 tests for non-commercial losses?

39). Are losses arising from passive investments ie. non-business, such as negatively geared rental property or shares affected by non-commercial losses rules?

40). How does the non-commercial losses work?

41). Are my bank charges deductible?

42). If I buy a briefcase for work, can I deduct it?

43). If I buy a calculator and/or electronic organisers, can I deduct it?

44). Is my child care fee deductible?

45). If I buy conventional clothing and wear it for work, can I deduct the cost?

46). Is my expenses on compulsory corporate uniforms deductible?

47). Is my sunscreen deductible?

48). Can I claim dry cleaning or laundry on clothing, uniforms and footwear?

49). If my laundry and maintenance costs less than $150, do I need to substantiate it?

50). I have joined several clubs, are my club membership fees deductible?

51). Can I deduct the software I bought?

52). Can I claim my conferences, seminars and training courses fees for doing my work?

53). As an employee, if I buy tools, equipment, and plant used for work purposes, can I deduct them?

54). I lost my Driver's Licence, can I deduct the cost of acquiring and renewing it?

55). Are the entertainment expenses deductible?

56). Can I deduct the parking fine and speeding fine?

57). I pay for parking fees and tolls but not fines, can I claim them?

58). Can my business and my personal deduct General Interest Charge (GIC) and the Shortfall Interest Charge (SIC) by Tax Office?

59). Is my ambulance subscription deductible?

60). If I attend a First Aid course, can I deduct the course fee?

61). If I obtain a Gaming Licence, can I deduct the cost?

62). I donated gifts of $2 or more but without receipts, can I deduct them?

63). I run my business and give gifts to clients, are these expenses deductible?

64). I wear prescribed glasses and/or contact lenses, can I deduct the cost?

65). I wear glasses and/or goggles for protective purpose, can I deduct the cost?

66). Can I claim or deduct my HELP/HECS repayments?

67). Can I claim my home office expenses that include utility bills such as heat, light, power, and depreciation on depreciating assets?

68). Can I claim my home office expenses that include occupancy expenses such as rent, insurance, rates and land tax?

69). Is my Income Protection Insurance deductible?

70). I borrow money for investment purpose, can I deduct interest on borrowing?

71). Can I deduct my Internet costs at home?

72). I spent legal expenses to attempt to renewal my existing employment contract, can I claim the costs?

73). I eat meals during normal working day, can I claim them?

74). I have my meals while travelling overnight for work-related purpose, can I claim them?

75). I have my meals while travelling for work-related purpose but not overnight, can I claim them?

76). Can I claim my overtime meals?

77). I buy various newspaper frequently, can I claim them?

78). I am a performing artist, can I claim my photographs?

79). Can my business deductible for prepaid expenses?

80). Can I deduct my professional library such as books, CDs, videos etc, if item costs more than $300?

81). Can I claim any of harnesses, sunscreens, sunglasses, goggles, safety glasses, breathing masks, helmets, boots, wet weather gear?

82). My employer helped me and paid for removal and relocation costs, can I claim the costs?

83). Can I and/or my business claim repairs and maintenance costs?

84). What self-education costs can I claim?

85). Can I claim my course or self-education costs in full?

86). What self-education travel costs that I cannot claim?

87). Can I claim my sports clubs’ subscriptions?

88). Can I claim my professional association’s subscription that I no longer earn an income?

89). Can I claim superannuation contributions?

90). Can I and/or my business claim costs on silent telephone number?

91). Can I and/or my business claim costs on installation and/or connection for telephones and other telecommunications equipment?

92). Can I and/or my business claim costs on rental charges and usage for telephones and other telecommunications equipment?

93). Can I claim my trauma insurance?

94). Can I claim travel from home (even my home is a place of business) to usual place of employment?

95). Can I claim travel from home to alternate work place for work-related purposes and return to normal work place or directly home?

96). Can I claim travel between normal work place and alternate place of employment or place of business and return or directly home?

97). Can I claim travel between two or more work places?

98). Can I claim my union fees?

99). How long should I keep my personal tax records?

100). Can I claim my work related car expenses without substantiation?

101). What records should my business keep?

102). What should I do if my business has any private use element?

103). Can my business get any substantiation relief from car and travel expenses?

104). Can our business claim costs of acquiring another business?

105). Can our business claim a deduction in establishing our business?

106). What is the “Blackhole expenditure”?

107). Can you give me some examples of “Blackhole expenditure”?

108). If our business purchasing another business of a capital nature, can we deduct the costs?

109). Can our business claim general running expenses?

110). What are the normal business general running expenses that we can claim?

111). What are the service entities and how do they work?

112). Can our business deduct legal expenses?

113). Can our business deduct equipment purchase related legal expenses?

114). Can our business deduct business lease expense and associated legal costs?

115). Can our business deduct valuation expenses?

116). Can our business claim expenses of arranging finance?

117). What legal expenses our business can claim as deduction?

118). What legal expenses our business cannot claim as deduction?

119). Can our business claim any fines and breaches of law?

120). How about our business makes payment to relatives or related parties?

121). Can I or my relative rent property to our business and claim rent as deduction?

122). Can our business claim interest on borrowings paid to relatives as deduction?

123). What if any disallowed amount for claim if our private company is a partner in a partnership?

124). Can our business claim lump sums payments on ceasing employment for an employee?

125). Can our business claim rates and land taxes?

126). Can our business claim interests?

127). Can our business claim interests if our business ceases trading or operation?

128). Can our business claim interests under split loans?

129). In our 4 partners partnership, 2 partners borrowed $20,000 each to invest in the In our 4 partners partnership, 2 partners borrowed $20,000 each to invest in thepartnership business to earn the partnership assessable income. Our partnership then later borrowed $40,000 to return that 2 partners’ capital contribution. In thiscase, can our partnership deduct interest on borrowed funds?

130). Can our company deduct interest of funds to repay share capital to the shareholders if that capital was employed as working capital in the company business andis used to derive assessable income?

131). Can our company deduct interest of funds to repay share capital to the shareholders if that represents dividend or bonus shares paid out of an unrealised assetrevaluation reserve or other equity account of the company?

132). Can we deduct repairs?

133). Is replacement or capital improvement a“repair”?

134). Are initial repairs deductible?

135). Can our business claim leasing expenses?

136). How can our business claim bad debts?

137). Can our business deduct prepayment of trading stock?

138). What about business-related interest for claims?

139). How does Personal services income (PSI) work?

140). How does Personal services business (PSB) work?

141). Does PSI rules have impact on GST of a taxpayer?

142). Does PSI rules affect the legal, contractual or workplace arrangements?

143). Which sales are GST-free?

144). Which acquisitions are GST-free?

145). What is a depreciating asset?

146). How can we defer sale date to get any advantage?

147). Shall I claim the Home Office or not?

148). May entertainment be a minor benefit?

149). How can we claim meal entertainment?

150). GST – Can an employer save on deductible FBT items?

151). Deductible on overtime meals?

152). Deductible on self-education expenses?

153). Deductible on non-commercial rent?

 

Tax Tips - Answers

 

13). What if I cannot pay my tax on time?

A: We can support you and help you meet your payment obligations. Just contact us for more detail if you like.

14). What is an individual’s 2015 tax rate?

A: You can contact us for prior to 2009 tax year’s tax rates. The latest tax rates are as follows:

Tax rates 2014-2015 – for Residents

Taxable income

Tax on this income

Up to $18,200

Nil

$18,201 – $37,000

19% over $37,000

$37,001 – $80,000

$3,572 + 32.5% over $37,000

$80,001 – $180,000

$17,547 + 37% over $80,000

$180,001 and over

$54,547 + 47% over $180,000

Tax rates 2014-2015 – for Non-residents

Taxable income

Tax on this income

Up to $80,000

32.5%

$80,001 – $180,000

$26,000 + 37% over $80,000

$180,001 and over

$63,000 + 47% over $180,000

 

15). What is an individual’s 2016 and onwards tax rate?

A: Please contact our office for the latest rates.


16). Can you give me an example of how much savings from 2009 to 2010 tax year?

A: For individual residents, see example of tax savings for various income ranges as follows (just note 2010 tax rate may subject to change due to budget and law changes):

Gross Income

2008-2009 tax

2009-2010 tax

Saving

$20,000

$900

$750

$150

$40,000

$5,200

$4,900

$300

$60,000

$12,000

$11,700

$300

$80,000

418,000

$17,850

$150

$100,000

$26,000

$25,450

$550

$120,000

$34,000

$33,050

$950

$140,000

$42,000

$40,650

$1,350

$160,000

$50,000

$48,250

$1,750

$180,000

$58,000

$55,850

$2,150

$200,000

$67,000

$64,850

$2,150

 

17). What about Low Income Tax Offset (LITO) changes?

A: For 2009-2010, the upper threshold LITO will increase from $60,000 to $63,750, and from 1 July 2010, to $67,500. The maximum LITO is $1,350 for the 2009-2010year up from $1,200 for 2008-2009 ((it may subject to change due to budget and law changes)).

18). What are Super co-contribution thresholds?

A: This will depend on the income year in which you made your personal super contributions.
The thresholds from 1 July 2008 are as follows:


Lower income threshold

Higher income threshold

What will I receive for every $1 of personal super contributions?

What is my maximum entitlement?

$30,342

$60,342

$1.50 for every $1, up to a maximum co-contribution of $1,500 a year.

Your maximum amount is $1,500. However, you must reduce this by 5c for every dollar you earn over $30,342 up to $60,342.


19). What are Super Fund Tax rates?

A: Complying fund is 15%; Non-complying fund is 45% - they may subject to change with the law changes.

20). Our business has turn over of less than 2 million dollars, are we qualified for government tax break of 50% deductions if we buy depreciable assets by 31 December 2009?

A: Yes. Just contact us if you want to know that in more detail.

21). Our business has turn over of greater than 2 million dollars, what are the government tax break deductions for us?

A: Scenario (1): an additional tax deduction of 30 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 30 June 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before 30 June 2010.

Scenario (2): an additional tax deduction of 10 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 13 December 2008 and 30 June 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state between 1 July2010 and 31 December 2010.

Scenario (3): an additional tax deduction of 10 per cent of the cost of eligible new tangible depreciating assets where the business commits to investing in the asset between 1 July 2009 and 31 December 2009 and first uses the asset, or installs it ready for use, or brings the asset to its modified or improved state on or before 31 December 2010.

22). Is the same-sex relationships tax treatment changed? When?

A: Yes, from 1 July 2009, all couples and families will be treated the same way for tax purposes, regardless of gender.

23). Has the foreign income tax offset rules changed?

A: Yes, new foreign income tax offset rules apply to income years, accounting periods starting from on or after 1 July 2008. Changes including that it is subject toa limit that is the greater of $1,000 or a calculated cap.

24). How much can I contribute to my super as non-concessional contribution?

A: As the Government 2009 Federal Budget, it was proposed that the annual cap remains at $150,000 for the 2009-2010 financial year.

25). Are there any new GST Ruling (GSTR) on Margin Scheme?

A: Yes, GSTR 2009/1 and GSTR2 009/2 deal with real property transactions that involve partitioning land and applying the margin scheme for general law partnerships.

26). I earned less than $11,000 gross income in 2008, can I get the government $900 tax bonus?

A: No.

27). I earned greater than $11,000 but less than $80,000 gross income in 2008 and I paid my tax, can I get the government $900 tax bonus?

A: Yes.

28). Can I get my $900 tax bonus for filing my 2009 tax return? A: No.

29). For negative gearing purpose, is there a limit on how much interest can be claimed?

A: No, no limit on interest tax deductions allowed if the investment is a passive investment, for example, on rental property, financial instruments, shares etc.

30). How many rental property can I have for negative gearing purpose?

A: You can have as practically as you can, no limit on this.

31). Can you give me an example of how negative gearing works?

A: Yes. For example, if you’ve negatively geared and suffered losses incurred on your rental properties or other income-producing investments, then you can use such

losses offset against other of your assessable income, thereby reducing your tax bill, i.e., total amount of tax payable.

32). How can I get a 100% deduction on my interest?

A: Yes. For example, if you’ve negatively geared and suffered losses incurred on your rental properties or other income-producing investments, then you can use such

losses offset against other of your assessable income, thereby reducing your tax bill, i.e., total amount of tax payable.

33). Can I borrow or lend money to myself to get any tax benefit?

A: No.

34). Is negative gearing always good for businesses such as trusts and companies?

A: No, not always. For example, for trusts and companies, negative gearing is usually only an attractive proposition if the company or trust has sufficient otherincome to enable the income losses from the company to be “soaked up” by that other income. Or, losses are “trapped” in a trust or company, ie. the beneficiary orshareholder is not able to utilise the losses to reduce their own income.

35). Where my trust has net income after deductions, can the negative gearing work in favour of me as a taxpayer?

A: Yes.

36).Does the main or principal residence exemption for family homes extend to homes owned by trusts or companies?

A: No.

37). How can I claim losses from non-commercial business activities?

A: You can only claim the losses if you satisfy at least 1 of the 4 tests.

38). What are the 4 tests for non-commercial losses?

A: The 4 tests are: Assessable income test, Profits test, Real property test, Other assets test.

39). Are losses arising from passive investments ie. non-business, such as negatively geared rental property or shares affected by non-commercial losses rules?

A: No.

40). How does the non-commercial losses work?

A: Such losses must be quarantined and they are not lost, they are merely deferred until the next income year or following income years, when the business activity is conducted and can satisfy 1 of the 4 tests for deduction or offset income.

41). Are my bank charges deductible?

A: If your account earns interest deductions are allowed, however no private transaction fees allowed.

42). If I buy a briefcase for work, can I deduct it?

A: If your account earns interest deductions are allowed, however no private transaction fees allowed.

43). If I buy a calculator and/or electronic organisers, can I deduct it? A: You can fully deduct if it costs $300 or less used for work and/or business purposes; if more than $300, it must be depreciated.

44). Is my child care fee deductible?

A: No.

45). If I buy conventional clothing and wear it for work, can I deduct the cost?

A: No.

46). Is my expenses on compulsory corporate uniforms deductible?

A: Yes.

47). Is my sunscreen deductible?

A: If it is used for protective purpose for your work or business, yes; otherwise, no.

48). Can I claim dry cleaning or laundry on clothing, uniforms and footwear?

A: Yes, provided that your clothing, uniforms and footwear are deductible under either of the categories of protective clothing, compulsory uniform, Non-compulsory uniform and occupational specific clothing.

49). If my laundry and maintenance costs less than $150, do I need to substantiate it?

A: No, provided it is reasonable claim.

50). I have joined several clubs, are my club membership fees deductible?

A: Generally not.

51). Can I deduct the software I bought?

A: If your Software is for work or business purpose, then it is 100% deductible if it costs less than $300, otherwise deductible over 2.5 years. For in-house developed software, it is deductible over 4 years from 1 July 2008.

52). Can I claim my conferences, seminars and training courses fees for doing my work?

A: Yes, provided that these are to maintain or increase your knowledge, skills or ability or promotion opportunity for your work as an employee.

53). As an employee, if I buy tools, equipment, and plant used for work purposes, can I deduct them?

A: Yes, for item costing $300 or less you can deduct it outright in the year of acquisition, if more than $300 per item, you might need to depreciate it.

54). I lost my Driver's Licence, can I deduct the cost of acquiring and renewing it?

A: No.

55). Are the entertainment expenses deductible?

A: No.

56). Can I deduct the parking fine and speeding fine?

A: No.

57). I pay for parking fees and tolls but not fines, can I claim them?

A: Yes, if they are paid while travelling for work-related and/or business purposes.

58). Can my business and my personal deduct General Interest Charge (GIC) and the Shortfall Interest Charge (SIC) by Tax Office?

A: Yes, GIC and SIC are Tax Office administrative penalties and/or an interest penalty. They are deductible.

59). Is my ambulance subscription deductible?

A: No.

60). If I attend a First Aid course, can I deduct the course fee?

A: It depends. If it is directly related to your employment or business activities, yes; otherwise, no.

61). If I obtain a Gaming Licence, can I deduct the cost?

A: If this relates to your employment or business, e.g., if you are in hospitality industry.

62). I donated gifts of $2 or more but without receipts, can I deduct them?

A: No, as receipts are required for verifying deduction.

63). I run my business and give gifts to clients, are these expenses deductible?

A: You can only deduct them if you can demonstrate there is a direct connection with earning assessable income.

64). I wear prescribed glasses and/or contact lenses, can I deduct the cost?

A: No. However, the costs could be possibly qualify as medical expenses.

65). I wear glasses and/or goggles for protective purpose, can I deduct the cost?

A: Yes, provided it is work and/or business related.

66). Can I claim or deduct my HELP/HECS repayments?

A: No.

67). Can I claim my home office expenses that include utility bills such as heat, light, power, and depreciation on depreciating assets?

A: Yes.

68). Can I claim my home office expenses that include occupancy expenses such as rent, insurance, rates and land tax?

A: Yes, you can only deduct to the extent that your home or study is used as a place of business; however, bear it in mind, if you own your home, you are in danger of losing your full main residence exemption down the track if you make these claims.

69). Is my Income Protection Insurance deductible?

A: Yes, deduction allowed only if the proceeds are assessable.

70). I borrow money for investment purpose, can I deduct interest on borrowing?

A: Yes, to the extent that money borrowed for work-related purposes or to finance income earning assets.

71). Can I deduct my Internet costs at home?

A: It depends. You can deduct non-private portion of them to the extent of deriving individual's work-related income, carrying on a business or earning investment income, e.g. share investing.

72). I spent legal expenses to attempt to renewal my existing employment contract, can I claim the costs?

A: Yes.

73). I eat meals during normal working day, can I claim them?

A: No.

74). I have my meals while travelling overnight for work-related purpose, can I claim them?

A: Yes.

75). I have my meals while travelling for work-related purpose but not overnight, can I claim them?

A: No.

76). Can I claim my overtime meals?

A: Yes, but only if allowance received under award.

77). I buy various newspaper frequently, can I claim them?

A: It depends. Claims can only be allowed if you can proof the publication is directly related to income producing activities.

78). I am a performing artist, can I claim my photographs?

A: Yes and no answer here: if cost is of maintaining portfolio, yes; if cost is of preparing portfolio, then no.

79). Can my business deductible for prepaid expenses?

A: Yes, if the services are to be performed within 12 months, otherwise, prepaid expenses have to be claimed on apportion basis over the period of services.

80). Can I deduct my professional library such as books, CDs, videos etc, if item costs more than $300?

A: No, rather than deduct 100%, you’ll need to depreciate any of them including a set of items.

81). Can I claim any of harnesses, sunscreens, sunglasses, goggles, safety glasses, breathing masks, helmets, boots, wet weather gear?

A: It depends. Claims can only be allowed if any of them is work-related and is to provide protection from natural environment.

82). My employer helped me and paid for removal and relocation costs, can I claim the costs?

A: No.

83). Can I and/or my business claim repairs and maintenance costs?

A: Yes, provided they are for income producing property/or work-related equipment purpose.

84). What self-education costs can I claim?

A: You can claim for fees, books, travel and equipment etc., but provided that there is a direct connection between the course and your income earning activities.

85). Can I claim my course or self-education costs in full?

A: You can claim for fees, books, travel and equipment etc., but provided that there is a direct connection between the course and your income earning activities.

86). What self-education travel costs that I cannot claim?

A: The cost of travel between your home and your place of work is not allowable for claim. Also note if you carry out income-earning activities at the institution; that becomes travel between “work” and home.

87). Can I claim my sports clubs’ subscriptions?

A: Strictly speaking, no.

88). Can I claim my professional association’s subscription that I no longer earn an income?

A: Yes, but you can only claim to a maximum of $42.

89). Can I claim superannuation contributions?

A: Claims only allowed if you are an employee and/or self-employed person, and your assessable income plus reportable fringe benefits is less than 10% of your total assessable income from all sources, plus reportable fringe benefits total.

90). Can I and/or my business claim costs on silent telephone number?

A: No.

91). Can I and/or my business claim costs on installation and/or connection for telephones and other telecommunications equipment?

A: No.

92). Can I and/or my business claim costs on rental charges and usage for telephones and other telecommunications equipment?

A: No.

93). Can I claim my trauma insurance?

A: No, if your benefits are capital in nature.

94). Can I claim travel from home (even my home is a place of business) to usual place of employment?

A: No.

95). Can I claim travel from home to alternate work place for work-related purposes and return to normal work place or directly home?

A: Yes.

96). Can I claim travel between normal work place and alternate place of employment or place of business and return or directly home?

A: Yes.

97). Can I claim travel between two or more work places?

A: Yes.

98). Can I claim my union fees?

A: Yes.

99). How long should I keep my personal tax records?

A: Records must be retained for 5 years from the later of the due date for lodging the return or when it is lodged, even if it is lodged later. Also note the 5 year period can be further extended automatically if there is anything unresolved with Tax Office.

100). Can I claim my work related car expenses without substantiation?

A: Yes, you can use set rate or cents per kilometer method.

101). What records should my business keep?

A: Yes, you can use set rate or cents per kilometer method.

102). What should I do if my business has any private use element?

A: You should then note any private use element and exclude that from business element

103). Can my business get any substantiation relief from car and travel expenses?

A: No, any car and travel expenses must be substantiated

104). Can our business claim costs of acquiring another business?

A: No, if acquiring is a capital transaction. However, it may form part of the “cost base” for capital gains tax purposes. Or, if it is the “Blackhole expenditure”,you may claim a deduction of 20% per annum.

105). Can our business claim a deduction in establishing our business?

A: Yes if it is “blackhole expenditure”, then it may be deducted over 5 years or 20% per annum.

106). What is the “Blackhole expenditure”?

A: It is expenditure for which there was no tax relief prior to 1 July 2001, because the expenditure was neither deductible, depreciable, nor included in the cost base of a CGT asset. Since 1 July 2001 it is recognised a deduction for project expenditure and business related costs.

107). Can you give me some examples of “Blackhole expenditure”?

A: Certainly. For example, expenditure to establish your business structure; expenditure to convert your business structure to a different structure; expenditure to raise equity for your business; expenditure to defend your business against a takeover; costs to stop carrying on your business; expenditures to investigate the viability of the business, such as feasibility studies and market research, and so on.

108). If our business purchasing another business of a capital nature, can we deduct the costs?

A: No, no part of that expense is allowable, also note if any stamp duty on it not allowable either.

109). Can our business claim general running expenses?

A: Yes, generally speaking.

110). What are the normal business general running expenses that we can claim?

A: Some of the many deductible expenses your business can claim include: salary or wages paid to your employees; payroll tax; business insurance premiums; interest on money borrowed for use in the business no matter what used for security; lump sums paid to employees’ leave entitlement; advertising and public relations costs but note no claim for “entertainment”; rates and taxes on business premise; postage, telephone and internet costs; workers' compensation premiums; travelling costs where qualified; and so on.

111). What are the service entities and how do they work?

A: Practically, some business structures involve a trust or company which has the separate task of providing such resources as staff, administration, equipment and/or premises. The “service entity” charges for this on the basis of certain “mark-ups”. The Tax Office allows the business entity to which the service entity provides the services to claim deductions for charges, provided these are supportable on a commercial basis. ATO Taxation Ruling TR 2006/2 provides details of the Tax Office's attitude to these arrangements.

112). Can our business deduct legal expenses?

A: If legal expenses incurred in carrying on you business, yes; if they are of capital or private nature, then no.

113). Can our business deduct equipment purchase related legal expenses?

A: That part would be capital expenditure, but can form part of the overall cost of the equipment on which depreciation is available.

114). Can our business deduct business lease expense and associated legal costs?

A: Yes, If your business operates in rented premises, lease payments will be deductible. Legal expenses incurred in respect of the lease are deductible when they are paid.

115). Can our business deduct valuation expenses?

A: It depends. If valuation fees are paid to help you decide whether to buy a business, these are generally not deductible capital costs. However, if the valuation is used to support an application to borrow money for use in the business, those expenses can be claimed as borrowing costs.

116). Can our business claim expenses of arranging finance?

A: It depends. If valuation fees are paid to help you decide whether to buy a business, these are generally not deductible capital costs. However, if the valuation

is used to support an application to borrow money for use in the business, those expenses can be claimed as borrowing costs.

117). What legal expenses our business can claim as deduction?

A: You can deduct legal costs including: negotiating employment contracts including disputes; recovering misappropriated funds; arbitration in settling disputes; defending a wrongful dismissal action bought by former employees or directors; defending a defamation action bought against a company board; pursuing claims for workers compensation; and so on.

118). What legal expenses our business cannot claim as deduction?

A: You cannot deduct legal expenses including: defending charges of sexual harassment or racial vilification which occurred in the workplace; disputing redundancypayout or seeking to increase the amount of any redundancy payout; eviction of a tenant whose term had expired; resisting land resumption, rezoning or disputing the amount of compensation; and so on.

119). Can our business claim any fines and breaches of law?

A: No. However, this may not apply to ATO GIC, or costs in defending action may be deductible etc.

120). How about our business makes payment to relatives or related parties?

A: Payments for any services rendered, the purchase of goods or any other outgoings, made to a relative or partnership in which a relative is a partner, or related entity, they may be deductible, but only to the extent they would be considered reasonable, by satisfying an arms-length standard.

121). Can I or my relative rent property to our business and claim rent as deduction?

A: Yes, but only if the amount of rent claimed is reasonable.

122). Can our business claim interest on borrowings paid to relatives as deduction?

A: Yes, but the interest paid on money borrowed from a relative must also be reasonable, i,e. that should not be greater than a fair commercial rate.

123). What if any disallowed amount for claim if our private company is a partner in a partnership?

A: In this situation, a deemed dividend may arise for a disallowed amount for a partnership in which your company is a partner.

124). Can our business claim lump sums payments on ceasing employment for an employee?

A: Yes, your business as an employer can claim these if an employee retires or cease employment; however, deduction may be limited on reasonable-based services if the

amount is excessive, regardless whether the payment is by way of pension, gratuity or retiring allowance. The payment must be reasonable and made in good faith for the past services of the employee to the business, otherwise Tax Office can deny a claim for excessive amount.

125). Can our business claim rates and land taxes?

A: Yes, claims are only allowed if they incurred to produce assessable income.

126). Can our business claim interests?

A: Yes and no answer, it depends on the situation and whether certain conditions are satisfied. For example, Interest incurred as an expense of running a business or to acquire other income-producing assets or investments is allowed as a tax deduction on the day it becomes due and payable; under cash or accruals accounting methods, interests may be claimed differently; “Rule of 78” may be used; Hire Purchase and Chattel Mortgage also accounted for differently; and so on.

127). Can our business claim interests if our business ceases trading or operation?

A: Yes, interest on borrowings may still be deductible even if your business has ceased like in some law case. However, this rule would not apply to derivation of any exempt income.

128). Can our business claim interests under split loans?

A: Please note, a split or linked loan is where the loan is both a private loan (to finance a home) and a business loan (to finance an investment or business).

Complicated case law applies in different situation and on case by case basis. Caution must be taken in these situation to avoid exposure to anti-avoidance rules of Part IVA, in which cases such interests are denied deduction.

129). In our 4 partners partnership, 2 partners borrowed $20,000 each to invest in the In our 4 partners partnership, 2 partners borrowed $20,000 each to invest in the partnership business to earn the partnership assessable income. Our partnership then later borrowed $40,000 to return that 2 partners’ capital contribution. In this case, can our partnership deduct interest on borrowed funds?

A: Yes.

130). Can our company deduct interest of funds to repay share capital to the shareholders if that capital was employed as working capital in the company business andis used to derive assessable income?

A: Yes.

131). Can our company deduct interest of funds to repay share capital to the shareholders if that represents dividend or bonus shares paid out of an unrealised asset revaluation reserve or other equity account of the company?

A: No.

132). Can we deduct repairs?

A: A deduction is only allowed in cases such as, a repair to premises, part of premises or a depreciating asset held for the purpose of producing assessable income.

If the property is held or used only partly for that purpose, a deduction is allowable only as reasonable and to that extent.

133). Is replacement or capital improvement a “repair”?

A: No.

134). Are initial repairs deductible?

A: No.

135). Can our business claim leasing expenses?

A: Yes, a full deduction is allowed in the year the expense is incurred for all the costs of taking a lease of premises or property to be used for income-producing purposes.

136). How can our business claim bad debts?

A: As a general rule, you can only claim them when the debts go bad, i.e., you cannot recover them. Other rules may apply depending on situation.

137). Can our business deduct prepayment of trading stock?

A: It depends, you cannot deduct them unless you can proof the goods purchased are reflected in either: trading stock sold or destroyed during the financial year; or,trading stock on hand at the end of that financial year.

138). What about business-related interest for claims?

A: Generally, companies, trading trusts and individuals carrying on a business are entitled to claim a deduction if the expense has been incurred as part of business operations. These include preserving the assets of the business; maximising investment return on those assets; and so on.

139). How does Personal services income (PSI) work?

A: Under the PSI rules, income will be treated as personal services income if it is a reward for your personal efforts or skills, or if the income is derived by an entity it would mainly be such a reward if it was your income.

The PSI rules may limit or deny deductions for some of the business related expenses incurred by the contractor or their entity. Those taxpayers that fail the prescriptive tests (ie. those that are not treated as conducting a personal services business) are required to return, as their individual income, all of the income earned from the provision of their personal services. Entitlement to certain deductions is also limited.

Those caught by the PSI rules are specifically excluded from being treated as employees, however there are PAYG withholding obligations imposed on any entity in which they conduct their personal, service activities. Conversely, the PSI rules do not affect any independent contractor (or any entity within which they conduct their personal services business).

140). How does Personal services business (PSB) work?

A: A contractor (or their trading entity) will be taken to have derived PSI unless he/she is treated as carrying on a personal services business by satisfying any one of the following tests:
- the results test;
- the unrelated clients test;
- the employment test; or
- the business premises test.

141). Does PSI rules have impact on GST of a taxpayer?

A: No. The PSI rules only affect the income tax treatment of personal services income. If the personal services income is paid to a company, trust or partnership, that income is still the personal services income of the individual.

142). Does PSI rules affect the legal, contractual or workplace arrangements?

A: No. The PSI rules only affect the income tax treatment of personal services income. If the personal services income is paid to a company, trust or partnership, that income is still the personal services income of the individual.

143). Which sales are GST-free?

A: If an entity is registered for GST, sales (including bartering) are normally subject to GST, unless they fall into the category:
GST Free sales
- Health services
- Educational courses at a recognised educational institution (but not sale of goods or supplies by an educational institution)
- Food that is not prepared, or not served at a restaurant or take-away premises
- Child care
- Religious services
- Non-commercial activities of charitable institutions
- Water & sewerage
- Sale of going concern
- Transport & related matters

144). Which acquisitions are GST-free?

A: Entities registered for GST can usually claim back the GST on acquisitions (including bartering) acquired by the entity unless they fall into the category:
GST free acquisitions
- Medical expenses
- Licences & registrations
- Rates & taxes
- Sewerage
- Training & education
- Stamp duty on insurance policies, Hire purchase etc
- Expenses that are not tax-deductible
- Donations
- Input taxed acquisitions
- Bank charges & fees
- Borrowing expenses
- Residential rental property expenses
- For expenses directly related to share dividends eg brokerage - claim 75% of the GST input tax dissect into GST taxable non-capital acquisitions 75% and input taxed 25%

145). What is a depreciating asset?

A: It is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used, such as computers, electric tools, furniture and motor vehicles. The cost of a depreciating asset is apportioned over the effective useful life of the asset. Land and items of trading stock are specifically excluded from the definition of depreciating asset. Most intangible assets are also excluded from the definition of depreciating asset.

146). How can we defer sale date to get any advantage?

A: Deferral of the sale to a subsequent financial year will be advantaged if the prevailing tax rates in the subsequent year are less than the current year. The disposal date for capital gains tax is normally the contract date. Where a sale of an asset is contemplated late in a financial year consider, where possible, deferring the contract until the new financial year. A few weeks deferral in contract signature could delay payment of capital gains tax by a year.

147). Shall I claim the Home Office or not?

A: Expenditure on a home office where claims can be made for a proportion of interest, rates etc. will normally expose the residence to captial gains tax. Let'sassume an architect conducts his business from a home office and the space devoted to this activity is 25% of the total floorspace area. Claims can be made for 25% of interest, rates and proportions of utility costs, insurance, etc. The Taxation Office considers that on disposal the property will be proportionately subject to capital gains tax. This may be of concern particularly where the property has enjoyed real gains in value. Where such a claim may be optional, consideration should be given to not making the home office claim in the first place. This could ultimately save many thousands of dollars in capital gains tax.

148). May entertainment be a minor benefit?

A: Entertainment can qualify for exempt minor benefit exclusion from GST. Entertainment is specifically not income tax deductible, but minor entertainment benefits could qualify for fringe benefit tax exemption. This is an unusual situation where an exempt minor benefit is not income tax deductible. Normally exempt minor benefits are tax deductible as they constitute an incidental cost of employment.

149). How can we claim meal entertainment?

A: Meals entertainment may be claimed as a minor benefit , or dealt with under a 50/50 method - but not both. The 50/50 method of dealing with meal fringe benefits allows half the benefit to be income tax deductible, but subject to fringe benefit tax. The other half is simply not tax deductible. An employer may not claim a minor benefit exemption for meals where the 50/50 method is adopted. If this method has been adopted, the employer must deal with all meal entertainment under the 50/50 method with no exclusions, including exempt minor benefits.

150). GST – Can an employer save on deductible FBT items?

A: A planning opportunity exists that saves GST (where an employer is GST registered). An employee may package items that are FBT exempt or otherwise deductible to an employer into his/her salary package. The advantage here is that the employer can claim an input tax credit on the benefit and no FBT is payable. Had the employee paid for the cost it would have cost the employee 10% more with GST. Examples of these types of costs include: subscriptions, conference costs, etc.

151). Deductible on overtime meals?

A: A deduction may be able to be claimed for overtime meal expenses incurred where an overtime meal allowance was received from your employer and the allowance was paid under industrial law, an award, or agreement. If the meal allowance received was greater than the actual expense incurred, the deduction is limited to the amount of expenditure incurred. Written evidence will be required if the claim per meal exceeds certain Tax Office thresholds.

152). Deductible on self-education expenses?

A: part-time or full-time student studying at university, college, school, or other place of education may be able to claim the cost of self-education. There must be a direct connection between the study and current work activities. No claim is allowable where study is undertaken to get a new job, or to open up a new business or income earning opportunity.

153). Deductible on non-commercial rent?

A: Landlords need to be mindful of the Tax Office's view on non-commercial rental arrangements. If you are renting a property at less than normal commercial rates, this can limit the amount of deductions to which you are entitled. The situation often arises in family situations, where one family member may rent a property to another family member at a nominal rental. In these situations, a deduction for rental property expenses can only be claimed up to the amount of the rental income received from the arrangement.


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