July 2019

Hello and welcome to our July 2019 newsletter.  In this quarter’s issue, we have provided articles on the following topics:

Staff Updates

We are very happy to welcome Roshini Suraweera back from Maternity leave on July 2nd for 3 days per week working Tuesdays, Wednesdays & Thursdays. Roshini can be reached via her email address: roshini@veritassolutions.com.au .

Allison Burman will be leaving us later this month to have her baby and will return sometime in the New Year, she will be missed by all. This serves as a reminder that any email queries that you would usually direct to Allison can be sent to admin@veritassolutions.com.au and they will be passed onto the most appropriate person.

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ATO targets for 2019

For the 2018/2019 personal income tax returns, the ATO has indicated that they are paying close attention to work related deductions, in particular, if you are claiming more than $2,000 to $5,000 in any one area. If you have legitimate claims in this area, it is important that you make sure each claim is backed up with receipts or written evidence. The importance of accurate record keeping is high with these deductions.

The type of records that you will need to keep is written evidence for any claims over $300. If it is under $300, then you still need to be able to show how you calculated the claim; however, you won’t need written evidence to support it. If the claim is over $300 the evidence must be provided for the whole amount claimed and not just the amount over $300. This $300 amount does not include car and meal allowances, award transport payments allowances, or travel allowances. These are subject to their own rules.

The ATO has also indicated that they will be paying close attention to rental properties and Airbnb’s in personal tax returns. They now have the ability to check rental income and expenses through real estate agents, so it is very important to make sure your claims are accurate and are supported with written evidence. They will be taking particular care when evaluating the income earned on each property, especially in circumstances when no income has been included for the property.

If you have any concerns regarding these issues in respect to your personal taxes, or you would like further information, please don’t hesitate to contact our office.

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How your Dividends are taxed

Recent research shows that 36% of the adult Australian population own investments listed on the stock market, some investing as individuals and some through Self-Managed Super Funds. The most common way for companies to pay returns to shareholders is by way of a cash dividend.

Significantly, whether you hold shares in a private company or a public listed one, the rules about how you are taxed on any dividends you receive as a shareholder are the same.

Dividends are paid out of profit, which have already been subject to Australian company tax which is currently 30% (or 27.5% for small companies). Recognising that it would be unfair if shareholders were taxed again on the same profits, shareholders receive a rebate for the tax paid by the company on profits distributed as dividends.

These dividends are described as being ‘franked’. Franked dividends have a franking credit attached to them which represents the amount of tax the company has already paid. Franking credits are also known as imputation credits.

The shareholder who receives a dividend is entitled to receive a credit for any tax the company has paid. If the shareholder’s top tax rate is less than 30% (or 27.5% where the paying company is a small company), the ATO will refund the difference.

Superannuation Funds pay tax at 15% on their earnings whilst in the accumulation phase, so most super funds will receive refunds of franking credits every year.

Dividend reinvestment plans

This is where the shareholders are given the opportunity to reinvest their dividends in additional shares in the paying company. If you reinvest a dividend in this way, your income tax liability on the dividend is calculated in exactly the same way as if you’d received a cash dividend. That means you may have an income tax liability – and no cash to settle it with because the cash was all reinvested. That needs to be borne in mind when you consider whether a dividend reinvestment plan is right for you.

Bonus shares

In some cases, companies will issue bonus shares to shareholders. These are not generally assessable as dividends unless the shareholder is given the choice between a cash dividend and a bonus issue in the form of a dividend reinvestment plan.

Instead, the bonus shares are taken to have been acquired for CGT purposes at the same time as the original shares to which they relate. This means that the existing cost base is apportioned over both the old shares and the bonus shares, leading to an overall reduction in the cost base of the original parcel of shares.

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Motor Vehicle Deductions for 2019

The Australian Taxation Office has determined that the rate for work-related car expenses for the income year 1 July 2018 to 30 June 2019 is 68 cents per kilometre. This is an increase from 66 cents per kilometre from previous years.

Cents per kilometre method:

Your claim is based on a set rate for each work-related kilometre you travel and is limited to 5,000 kilometres. While there is no written evidence required, you must be able to reasonably show how you came up with the number of work-related kilometres. The ATO can ask how you calculated your claim and how the use of your car was work related.

Log book Method:

If you travel more than 5,000 kilometres per financial year for work, and intend to claim car expenses, the ATO requires you to keep a logbook to support that claim.

Using the logbook method, your tax deduction claim is based on your car’s “business use percentage”. To work out your business use percentage, you need to keep a logbook for your car for a typical consecutive 12-week period.

Your logbook must include every trip you take – not just your business-related trips.
The logbook must include the following details:

  • date for each journey
  • start and finish odometer readings for each journey
  • total number of kilometres for each journey
  • reason for each journey
  • start and finish dates for the logbook period
  • start and finish odometer readings for the logbook period

Keep receipts for all expenses related to your car, including:

  • petrol
  • registration
  • insurance
  • servicing
  • interest on loan costs
  • other running costs

As with all tax deductions, you must have spent the money and haven’t been reimbursed by your employer, the claim must be directly related to earning your income and you need to be able to prove that the expense was incurred.

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Making Downsizer Contributions

If you are over 65, you can make non-concessional (after-tax) contributions of up to $300,000 from the proceeds of selling your home. You can make a ‘downsizer’ contribution even if you’re otherwise unable to contribute because of your age, work, or the amount you have in super.

How does it work?

If you are over the age of 65 and exchange contracts for the sale of your primary residence on or after 1 July 2018, you could be eligible to make after-tax contributions of up to $300,000.00 from the proceeds of selling your home. If you have a partner, you are able to take advantage of this by making a combined total of up to $600,000 to super.

Who is eligible?
  • You must be 65 years or older at the time you make the downsizer contribution.
  • Your contributions must come from the proceeds of the sale of your home (exchange must be on or after 1 July 2018).
  • You must not have previously made a downsizer contribution to your super from the sale of another home.
  • You or your partner must own your home for 10 years or more prior to the sale.
  • Your home must be in Australia and cannot be a caravan, houseboat or other mobile home.
  • The capital gain or loss must be either exempt or partially exempt from capital gains tax under the main residence exemption.
  • You must make your downsizer contribution within 90 days of receiving the proceeds of sale (usually the settlement date).
Things to consider:

Age Pension: Downsizer contributions are added to your super balance, which means they are included in the assets and income tests used to determine eligibility for the age pension and Department of Veteran Affairs benefit. The family home is not counted in these tests, so making downsizer contributions could mean you miss out on the age pension. Please note that your super balance (including downsizer contributions) is also used to determine eligibility for residential aged care and home care services.

Transfer Balance Cap: You have a limit of $1.6 million on the amount of savings you can move from super into an income stream. If your total superannuation balance is more than $1.6 million, then any downsizer contribution you make must stay in your accumulation account. Earnings in accumulation in super are taxed at 15%, whereas they are not taxed in a retirement income stream.

Who can benefit?
  • If you are an older member who wants to boost your income in retirement by unlocking capital in your family home.
  • If you are a self-funded retiree who would like to put more into super and has a level of income and assets that means you’re not eligible for the age pension or the other government benefit.
  • You are an older member with a total superannuation balance over $1.6 million and want to take advantage of the 15% tax on earnings offered by super. This can help you put more into your super and pay less tax than you would outside super.
How to make the contribution:

If you decide to make a downsizer contribution, you will need to complete the ATO form available ‘here‘ . By submitting the form, you are confirming that you have met all the eligibility criteria, as outlined above. Remember, all downsizer contributions must be made within 90 days of receiving your sale proceeds.

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