GST for Other Health Services

GST for other health services is outlined in s38-10 GST Act. It is one of five GST exemptions.

GST for Other Health Services

The confusion starts with the word ‘Allied Health’ itself. There is no universally accepted definition. And hence the GST Act doesn’t give you a universal exemption either, but instead gives you a lot of if’s and when’s. 

Subdiv 38-B

Allied health services are GST-free if they meet one of five possible exemptions in Subdiv 38-B A New Tax System (Goods and Services Tax) Act 1999 – in short GST Act. Think of them as five doors. You only need to fit through one.

1 – Hospital (s38-20)
2 – Aged care (residential care (s38-25), home care (s38-30) or flexible care (s38-35))
3 – Disability (disability support provided to NDIS participants (s38-38) or specialist disability services (s38-40))
4 – Medical services and (s38-7) including Medicare
5 – Other health services (s38-10)

Most relevant for allied health workers are three exemptions: NDIS, Medicare and other health services. Let’s cover NDIS and Medicare in the next article and focus on ‘other health services’.

Other Health Services

Other health services are GST-free under s38-10 GST Act if they meet the following four conditions.

Condition # 1  – In The Table

             s38-10 GST Act: (1)  A supply is GST-free if: (a) it is a service of a kind specified in the table

The Table…..Your service must be listed in the table of s38-10 (1). If it is not, s38-10 is not for you – try a different exemption. Here is The Table –  the 21 ‘other health services’ 

# 1 Aboriginal or Torres Strait Islander Health, # 2 Acupuncture, # 3 Audiology and audiometry, # 4 Chiropody, # 5 Chiropractic, # 6 Dental, # 7 Dietary, # 8 Herbal medicine (including traditional Chinese herbal medicine), # 9 Naturopathy, # 10 Nursing, # 11 Occupational therapy, # 12 Optometry, # 13 Osteopathy, # 14 Paramedical, # 15 Pharmacy, # 16 Psychology, # 17  Physiotherapy, # 18 Podiatry, # 19 Speech pathology, # 20 Speech therapy and # 21  Social work

Condition # 2 –  Recognised Professional

       s38-10 GST Act: (b)  the supplier is a recognised professional in relation to the supply of services of that kind….

Are you a ‘recognised professional’ as defined in the GST Act? The answer is complicated because there is not just one allied health registration. Each allied health profession is different. Some have compulsory registration by law, eg. psychologists. Some have compulsory registration set by their professional body in an attempt to self-regulate the profession, eg. speech pathologists.  And others have voluntary registration either in Australia or overseas, eg. behavioural therapists.

So it all depends on whether you need to be registered – by law or by your professional governing body. If you do and you are, you are a recognised professional as per s195 – 1 GST Act.

s195 – 1 GST Act

This is probably too much detail, so briefly just in case it matters. Here is the actual wording of s195-1.

(a) covers mandatory registration by law:
“a person is a recognised professional,…if: (a)  the service is supplied in a State or Territory in which the person has a permission or approval, or is registered, under a State law or a Territory law prohibiting the supply of services of that kind without such permission, approval or registration” Think of a psychologist. To practice they must register with the Psychology Board of Australia, which is part of AHPRA (Australian Health Practitioner Regulation Agency). So a registered psychologist qualifies as a recognised professional.

And (b) covers mandatory registration as per the profession’s governing body:
“(b)  the service is supplied in a State or Territory in which there is no State law or Territory law requiring such permission, approval or registration, and the person is a member of a professional association that has uniform national registration requirements relating to the supply of services of that kind. Think of a speech pathologist. You must register with Speech Pathology Australia to practice. So a registered speech pathologist would qualify as a recognised professional.

But…if registration is voluntary or overseas, for example for behavioural therapists, then there is no ‘recognised professional’ as per s195-1 GST Act. However, you can still qualify through one of the other exemptions, notable the NDIS exemption.

Condition # 3 – Accepted as Being Necessary

     s38-10 GST Act: (c) the supply would generally be accepted, in the profession associated with supplying services of that kind, as being necessary for the appropriate treatment of the recipient of the supply.

The GST Act doesn’t define the term ‘appropriate treatment’. But there is a legally binding public ruling in which the Commissioner defines the term.

10. …’appropriate treatment’ will be established where the recognised professional assesses the recipient’s state of health and determines a process to pursue, in an attempt to preserve, restore or improve the physical or psychological wellbeing of that recipient insofar as that recognised professional’s particular area of training allows and will include subsequent supplies for the determined process.

Sounds nebulous but if your treatment plan ‘fits the crime’, then you should be fine. This condition rarely is an issue. 

Condition # 4 –  Recipient of Supply

The person receiving the treatment must be the one paying for it. If that is the case – e.g. privately paid treatments – all good. If this is not the case, then you have an issue of supply.

Issue of Supply

There are two common issues of supply. You have an issue of supply if somebody else – not the patient – pays for the treatment. And you have an issue of supply if somebody else – not you – provides the treatment.

1 – Somebody else pays for the treatment

If a third-party – e.g. Medicare, NDIS, private health insurance or workers compensation – pays for the treatment, then they receive your supply. But they are not sick, so they are not receiving an allied health service. So at face value your supply would not be a necesary treatment.

However, there is s38-60. If a health service would have been GST-free under Subdiv 38-B apart from the issue of supply, then s38-60 can fix this for three types of schemes:  Private health insurance s38-60 (1), compulsory third party schemes like workers comp s38-60 (2) and governement agencies like Medicare and NDIS s38-60 (3). But s38-60 only applies to services that would already be GST-free if it wasn’t for the issue of supply.

2 – Somebody else provides the treatment

If you are the one collecting payment but you are not the one actually providing the treatment because you engage contractors, then you also have an issue of supply. So your contractors have to charge you GST, because you are receiving a service from them that is not an allied health service. However, if you are registered for GST, you can claim that GST right back. So it doesn’t really affect you.

If employees provide the service on your behalf, then no issue of supply. 

Summary

So all up, other health services is one of five possible GST exemptions for allied health. You qualify under s38-10 if you are ‘in the table’, a ‘recognised professional’, your treatment fits the norma and you have dealt with the issue of supply. If you tick these four boxes, your supply is GST exempt.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

GST for NDIS Services

There is usually no GST for NDIS services – if you meet the conditions in s38-38 GST Act. 

GST for NDIS Services

If you are an allied health provider and registered with the NDIS, all your NDIS services should be GST exempt per s38-38 GST – generally speaking. The devil is in the detail. So let’s go through this step-by-step.

GST for NDIS Services

GST is a big topic for NDIS providers. There are five issues to look out for.

1 – Which GST Exemption

The NDIS exemption in s38-38 New Tax System (Goods and Services Tax) Act 1999 – in short GST Act – is an important one for NDIS providers. It makes pretty much all NDIS services GST exempt. But it is not the only exemption you can refer to. As an allied health provider, you have five possible GST exemptions per Subdiv 38-B GST Act.

A – Hospital (s38-20)
B – Aged care (residential care (s38-25), home care (s38-30) or flexible care (s38-35))
C – Disability (disability support provided to NDIS participants (s38-38) or specialist disability services (s38-40))
D – Medical services (s38-7) including Medicare
E – Other health services (s38-10)

Your service might qualify under two or more exemptions. But that makes no difference. The main thing is that you qualify for at least one.

2 – GST Registration

Even if all your services are GST- exempt, you still need to register for GST if your turnover exceeds AUD 75,000 for any given 12-month period. Your turnover includes GST-exempt sales. Below the threshold of AUD 75,000, you can still register voluntarily.

Contrary to what you might think, a GST registration might save you money – a lot. The only time a GST registration will cost you money is if a large part of your services are NOT GST exempt and are made to recipients who are not registered for GST. So even if your turnover is below AUD 75,000, consider registering after you have spoken with your accountant.

3 – Conditions in s38-38 GST Act

Not we get into the nitty-gritty details of your NDIS exemption. Your service to an NDIS participant is GST free, if:

A – Your patient is an NDIS participant as defined in the National Disability Insurance Scheme Act 2013 (‘NDIS Act’).
B – This NDIS participant has an NDIS plan.
C – That NDIS plan is in effect under s37 NDIS Act.
D – That NDIS plan lists your type of services in their Plan Statement (s33 (2) NDIS Act).
E – You have a written service agreement with the participant or their nominee.

F – This agreement identifies the participant.
G – This agreement includes your Supply Statement linking your services to the Plan Statement.

Plan Statement

Your patient’s NDIS plan will include a statement  in which they specify the reasonable and necessary supports funded under the NDIS. This is required under s33 (2) NDIS Act. Your service agreement must link to these reasonable and necessary supports. 

Supply Statement

You link your service agreement to the reasonable and necessary supports listed in the Plan Statement by putting the following Supply Statement into your service agreement. Supply is a word from the GST Act. The GST Act calls your services a supply.

“Our services outlined in this service agreement are a supply of one ore more of the reasonable and necessary supports specified in the statement included, under subsection s33 (2) of the National Disability Insurance Scheme Act 2013, in your plan, with you being the participant of the plan.”

4 – NDIS Plan

When you look at the conditions to qualify for the NDIS exemption, a lot rides on the NDIS plan. But your patients have no legal obligation to show you their NDIS plan. If they don’t, how do you know they even have one? And if they do, that your services are listed in the Plan Statement? And if they are, that your services will still be within the plan’s budget?

You don’t. So here is how this plays out.

A – NDIA Managed

As you know an NDIS participant can manage the plan themselves or engage a plan manager. But instead they can also go for an NDIA managed plan. In that case you as the supplier lodge a service booking before providing the service. Once your service booking is accepted, you know for sure that your service is on plan and on budget. If that is the case, you can stop here. Just invoice without GST.

B – Another GST Exemption

Check whether another exemption could apply. There are five exemptions – see 1 above. If another GST exemption would also apply, then you don’t need to worry about the NDIS exemption. Then it doesn’t matter, whether your patients have an effective NDIS plan or not. Just invoice without GST.

C – Tough Love

If there is no NDIS plan and no other GST exemption in sight, then one option is to go for tough love. Tough love is “No Plan – No Exemption”. If you can’t see an NDIS plan, you just assume that there is none. And charge GST.

D – Sign Here

The alternative to tough love is signing. If your patient assures you that they have an effective plan, you insert the paragraph listed below into the service agreement for your patient to sign. With this signature, you can assume that your service is GST exempt. Here is a draft – adjust or rewrite as you see fit:

“You hereby confirm that you have a current plan (‘your NDIS plan’) approved by the National Disability Insurance Agency (NDIA) and in effect under s37 of the National Disability Insurance Scheme Act 2013 (NDIS Act).

You hereby confirm that the type, time and quantity of services you have requested from us are specified in your NDIS plan as reasonable and necessary support as per s33 (2) NDIS Act, are within the budget for this type of services in your NDIS plan and are of a kind referred to in s38-38 (d) A New Tax System (Goods and Services Tax) Act 1999 (‘GST Act’).

This service agreement between you as participant or nominee of the participant and us as the supplier is legally binding and is the written agreement required in s38-38 (c ) GST Act.

Based on these affirmations we will treat our services to you as exempt from GST per s38-38 GST Act.

You hereby agree that you will inform us of any changes to your circumstances that would affect the above, for example if:

      • You no longer have a NDIS plan in effect
      • Our services exceed the budget in your NDIS plan
      • Our services are no longer listed in your NDIS plan.”

E – Charge GST

And if nothing else works, you charge GST.

5 – What is Covered

As you provide your services, there will be outliers. Things you usually don’t provide or do, but at times you do. Do those outliers fall under the NDIS exemption? A common example are assessment reports.

It all comes back to the NDIS plan outlined above. If your service booking for NDIA managed plans gets accepted, they are covered. If your client gives you in writing that the one-off services or products are listed in the Plan Statement, then they fall under the NDIS exemption. 

So this is a short overview. We hope it helps. Please call or email if you get stuck.

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Carryforward of Concessional Contribution Caps

Carryforward of Concessional Contribution Caps

The carryforward of concessional contribution caps gives you time. It gives you time to decide.

Carryforward of Concessional Contribution Caps

It used to be a decision at the last minute. Do you top up or not?

If you don’t top up, you leave your concessional contributions at the superannuation guarantee (SG) that came with your wages.

If you do top up, you increase your concessional contributions to the relevant cap and claim a tax deduction for that top up. 

Whether you do or don’t used to be a last minute decision. It was a use it or lose it. But it no longer is. At least for five years it isn’t. You now have five years to decide.

Let’s start from the beginning.

Concessional Contribution Cap

You have a cap on concessional contributions each year. The cap is:

2018/19 – $25,000
2019/20 – $25,000
2020/21 – $25,000
2021/22 – $27,500
2022/23 – $27,500 (estimate)

This cap includes any superannuation (SG) guarantee you received. SG is the super your employer pays for you in line with your wage or salary. 

Tax Deduction

Concessional contributions are called concessional because somebody gets a tax deduction for these contributions. For SG your employer gets the tax deduction. For any top up you do.

Excess Contribution Tax

Nothing stops you from contributing more than these caps. But if you do (without a relevant rollforward), then you pay excess contribution tax.

Sometimes it makes sense to pay the additional excess contribution tax, but usually it doesn’t.

But you might not even have to, since there is the rollforward.

Rollforward

It used to be that if you didn’t use up a cap, you lost it. So if you didn’t make any concessional contributions in 2017, that unused cap was lost. But not anymore.

From 1 July 2018, you can rollforward any unused contribution caps for up to five years.

So in 2021/22 you could make a concessional contribution of $102,500 and claim a tax deduction for the full amount. Or if you wait another year until 2022/23, you could claim $130,000. Of course assuming you received no other concessional contributions in those years, so neither SG nor personal.

However, if you wait until 2023/24, then you lose the 2018/19 cap, since you are out of the 5 year period. 

So you have five years to decide, but at the end of the fifth year it is back to: Use it or lose it.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Tax When You Expand Overseas

Tax When You Expand Overseas

What happens to your tax when you expand overseas?

Tax When You Expand Overseas

There are two things you need to look out for around tax when you expand overseas. And these are GST and income tax. 

GST

When you sell things overseas, these sales are usually GST-free in Australia.

However, the other country might charge GST on your products. And they charge this GST in one of three ways:

1 – If you sell via a platform like Shopify or Amazon, the platform will charge the overseas GST.

2 – If your product exceeds a certain value, the other country will hold your shipment until your customer pays the overseas GST. 

3 – And if total sales in that country exceed a certain threshold, your Australian or overseas company – depending on who makes the sales – is required to register for GST, charge overseas GST and lodge overseas GST returns. 

So that’s GST in a nutshell. Of course, the devil is in the detail, but this is roughly how it works in most countries.

Income Tax

In Australia you are taxed on your worldwide income, assuming you are a tax resident of Australia. 

But to what extent any overseas profit is taxed in Australia or overseas, depends on what you are doing overseas. So you face one of four scenarios.

1 – You have no presence in the other country – no staff, no stock, no office, no warehouse, no company or other entity, nothing. And so you pay no income tax over there. Everything is taxed in Australia.

2 – You have an entity over there that will pay that country’s tax just like anybody else. When you now distribute these profits back to your Australian entity, there is no further tax. So your business only pays tax once on these profits. 

3 – You have no entity over there but a presence – be it staff, inventory, wharehouse, office or something else. And so you have a so-called permanent establishment. And this permanent establishment lodges tax returns and pays tax over there just like a real entity. Any profits sent back to Australia come with a credit for any tax paid overseas, so your business only pays tax once.

4 – You have an entity over there but are able to argue that this entity is an Australian tax resident and has no permanent establishment in the other country. It used to be that you only need central management and control in Australia for this to work. But now you also need your core operations in Australia. And that makes scenario 4 beyond the point now and infeasible.

Double Taxation

Why would you even be interested in scenario 4 if it was still feasible? Because scenario 2 and 3 have one big drawback if you operate through an Australian company – double taxation.

When you distribute the overseas profits to you as the sole shareholder, there is no franking credit attached to the extent the Australian company didn’t pay Australian income tax.

The foreign income tax paid doesn’t give you franking credits. And so you pay tax again on the overseas profit at your marginal tax rates. If …..

Ways To Avoid Double Taxation

If there is an overseas profit. And if you actually distribute those overseas profits to the individual shareholder.

The Australian entity can on-charge any expenses it incurred for the overseas entity (plus margin) in form of management fees. That might already reduce the overseas profit to nil or at least significantly reduce it. But make sure you can justify these charges. The overseas tax collection agency might look at your transfer pricing.

And you don’t have to distribute the overseas profits anyway. If you want to keep some profits in the Australian entity to fund further expansion, you keep the overseas profits and pay the Australian profits out and hence no double taxation either.

Permanent Establishment

Whether you have a permanent establishment (‘PE’) in the other country is not always easy to tell. There is a lot of grey. But here are a few clear indicators.

Using a 3PL service doesn’t create a PE, but using your own warehouse does.

Having independent contractors doesn’t create a PE, but having dependent contractors or staff does.

Using a shared office from time to time while you travel doesn’t create a PE, but having a permanent office does.

The rest depends on the double tax agreement between Australia and the other country and a few other things.

Summary

So when you want to expand overseas, look at GST and income tax. And give me a call if you get stuck.

 

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How to Book a Company Car in Xero

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

How to Book a Company Car in Xero

How to book a company car in Xero? Here is how you do it.

Book a company car in Xero

To book a company car in Xero is complex – there are a lot of moving parts. You have the split between principal and interest. Then depreciation or the instant asset write off. GST. The car limit. FBT. And last but not least a potential Div 7A issue. That is a lot. But let’s go through it step by step.

Acquisition

Let’s use an example. On 14 April 2020 you bought a car for $80,000 – a so-called ‘luxury car’ – and the dealer invoice says the following:

NetGSTGross
Vehicle Price69,698.476,969.84776,668.32
Transfer Fee34.00034.00
LCT (Luxury Car Tax)342.680342.68
Stamp Duty2,955.0002,955.00
73,030.156,969.8580,000.00
Less Deposit(2,000.00)
Less Finance Liability(78,000.00)
Due0.00

You book this purchase in Xero in 9 simple steps.

Step 1 – Raise a Bill 

You start with raising a bill if the car is financed. If you pay for the car, you have a choice – bill or money spent.

DR Fixed Asset 1GST on Expenses69,698.47
DR Fixed Asset 1GST Free Expenses34.00
DR Fixed Asset 1GST Free Expenses342.68
DR Fixed Asset 1GST Free Expenses2,955.00
DR GSTSystem generated6,969.85
CR Car Finance LiabilitySystem generated – BAS Excluded(80,000)

So the car shows up in your balance sheet with $73,030.15.

Step 2 – Reconcile Loan Repayments 

Every time there is a loan repayment, you need to split the payment between principal and interest as listed in the finance documents.

DR Car Finance LiabilityBAS Excluded1,000
DR Interest ExpenseBAS Excluded1,00
CR BankSystem Generated(1,100)

If you paid for the car outright, then you can skip this step. There is no liability to repay.

Step 3 – Determine Car Limit Excess

If the purchase price of your car is below the car limit in the year of purchase, you can skip this step. If it isn’t, you claimed too much GST in Step 1. So now you adjust this.

The car limits for 2019/20 and 2020/21 are as follows (for all cars, whether fuel efficient or not):

YearNetGSTGross
2019/2052,346.365,234.6457,581.00
2020/2153,760.005,376.0059,136.oo

This is the maximum GST and depreciation you can claim. No need to pro rata for having bought the car sometime during the year. 

Step 4 – Adjust GST

So now you adjust the GST to these amounts. Here is the booking.

DR Fixed Asset 1BAS Excluded19,087.32
CR Fixed Asset 1GST on Expenses(17,352.11)
CR GSTSystem generated(1,735.21)

The GST of $1,735.21 you no longer claim increases the cost of the car from $73,030.15 to $74,765.36.

Step 5 – Instant Asset Write Off 

Thanks to the instant asset write off ($150,000 threshold until 30 June 2021), you can claim the car in one go. But you only get a tax deduction up to the car limit.

DR Instant Asset Write Off ExpenseBAS Excluded52,346.36
DR Non Deductible ExpensesBAS Excluded22,419.00
CR Accumulated Depreciation Asset 1BAS Excluded(74,765.36)

You can book the GST adjustment through a manual journal – as done above – or through the depreciation worksheet in Xero.

Step 6 – Determine FBT Days

In the year of purchase (or sale) you don’t hold the car for the full 365 days. Open the ATO day calculator here and calculate the days from the date of purchase to 31 March. The FBT year goes from 1 April to 31 March.

In this example you bought the car on 14 April 2020. So you calculate the FBT days from 14 April 2020 to 31 March 2021, which are 352 days.

Step 7 – Calculate FBT

Any company car takes you into FBT territory. FBT stands for Fringe Benefit Tax.

Providing you or any employee with a car constitutes a car benefit covered by Division 2 FBT Assessment Act, giving rise to FBT. 

To work out your FBT position, you choose between the statutory formula method and the operating cost method. The later requires a log book.

Which one is better depends on how much you REALLY use the car for business. If less than 80%, use the statutory formula method which works like this (base value excludes registration or stamp duty):

Taxable Value = Base Value (cost + delivery + GST) x 20% x Available Days/365 – Employee Contribution

Not relevant in the year of purchase or the subsequent 3 years, but once you owned the car for at least 4 years on 1 April, you can reduce the base value by 1/3 (33.33%).

NetGSTGross
Vehicle Price69,698.476,969.84776,668.32
Transfer Fee34.00034.00
TOTAL Base Value69,732.476,969.8576,702.32
x 20%15,340.46
x 352/365 days14,792.81

So you take 20% of the base value and then pro rata the amount. That is the employee contribution to reduce your FBT to nil.

Step 8 – Book Employee Contribution

You have a choice. You can lodge an FBT return and then pay the FBT. Or you recognise an employee contribution for the amount and voila: No FBT to pay and no FBT return to lodge. Most sole sharesholders do the later.

The employee contribution is subject to GST. In the example it would look like this.

DRShareholder LoanBAS Excluded14,792.81
CROther IncomeGST on Income(13,448.00)
CRGSTSystem Generated(1,344.81)

If you set amounts to ‘GST inclusive’ in Xero, you don’t need to calculate the GST. The software does it for you.

Step 9 – Div 7A

You just have one last potential problem to deal with if you booked the employee contribution in Step 8. And that is Div 7A. If the company has a receivable to the shareholder at year end, you have a Div 7A problem.

So create a Div 7A agreement or reduce the distributable suplus to nil.

Summary

And that’s it. This is how you book a company car in Xero. In future years, you still have to deal with loan repayments and FBT employee contributions, but the rest is done and dusted.

Does this make sense? Please give me a call if you get stuck.

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Car Tax Deduction

Your business needs a car, so it got one. The big question is tax. How do you claim your car tax deduction?

Car Tax Deduction

Working out your car tax deduction can be confusing. Here are 10 steps to get the highest tax deduction possible.

1 – Put Travel Aside

Everything that follows here is about car expenses (motor vehicle expenses to be precise), but not travel. The distinction between car and travel is important, because different rules apply. 

Motor vehicle expenses are fuel, oil, repairs, servicing, car wash, insurance, registration, interest and depreciation (or lease payments) and so on.

Travel expenses are road tolls, parking, car ferry or paying somebody for getting a lift and so on. If you incur these for a business trip, you get the full tax deduction.

So put travel expenses aside for now and focus on car expenses.

2 – Ownership

Whoever owns the car, gets the car tax deduction. 

If your employee owns the car, you get no tax deduction for the car itself. But you get a tax deduction for any car allowance you pay. Treat the allowance like any other wage payment. After that you are done. 

If you own the car, you get the tax deduction.

3 – Methods

Now it gets confusing. You need to choose a method to work things out. The problem is that there are four methods. Four!

Cents-per-km Method: You claim 72 cents for each business km – up to 5,000 km. That is your tax deduction.

Logbook Method: You log every trip over 12 weeks and work out your business percentage, which you then apply to your actual cost. That is your tax deduction. Your logbook is valid for 5 years.

Statutory Formula Method: You apply 20% to your car’s base value, possibly pro rata. That is your FBT taxable value.

Operating Cost Method: You keep a log book for 12 weeks and work out your private percentage, which you then apply to your actual cost. That is your FBT taxable value.

But not all of these four methods apply to you at once. 

4 – Tax Deduction

Which tax deduction is available to you depends on your business structure and type of motor vehicle.

Business Structure

If you are a sole trader or partnership, you can choose between the cents-per-km and the logbook method to determine your tax deduction.

If you are a company or trust, you get a full deduction for all motor vehicle expenses. Whatever you pay, you get to tax deduct. But….then FBT picks up any private portion of those costs. 

And to calculate this FBT value, you either use the statutory formula method or the operating cost method.

Type of Motor Vehicle

Everything we talk about here only applies to cars. Cars is anything designed to carry a load of less than one tonne and less than nine passengers.

Anything larger than this usually gets a full tax deduction and no FBT.

5 – Best Method

How do you work out which one will give you the highest tax deduction? The answer depends on your actual costs and private use.

Actual Costs

The cents-per-km and statutory formula methods don’t take your actual running costs into account. But the logbook and operating cost methods do.

So if your running costs are particularly high – high kms, fuel inefficiencies, a lot of repairs, expensive maintenance etc – then go for the logbook /operating cost method. If they are low, go for the cents per km / statutory formula.

The purchase price only matters if your car is below the car limit.

Private Use

The statutory formula method is the only method that ignores your actual private use and just assumes a fixed percentage. So if your private use is high – rule-of-thumb over 20% – go for the statutory formula method in a company or trust. If your private use is low, go for the other methods.

6 – Receipts

For the cents-per-km method you don’t need receipts. Just a reasonable explanation how you calculated your number of business kms.

For the logbook method you don’t need receipts for fuel and oil if you can show how you estimated those costs, but you need receipts for all other costs.

As a company or trust you need receipts for all motor vehicle expenses.

7 – Instant Asset Write Off

The instant asset write off rules give you a full tax deduction in the year of purchase (adjusted to your business % if a sole trader or parternship), as long as the purchase price is below the threshold.

This threshold is currently $150k until 30 June 2021. 

8 – Car Limit

You can only claim a car tax deduction and GST up to the car limit. The car limit for 2020/21 is $59,136 including GST, so $53,760 plus GST of $5,376.

For the cents-per-km method the car limit doesn’t affect you.

In all other cases it does. You can only claim depreciation (or the instant asset write-off) and GST up to the car limit, reduced by any private % for sole traders and partners. 

9 – Employee Contributions

This one only applies to companies and trusts. If the employee reimburses the company or trust for the taxable value they received, then the FBT is nil. If they don’t, then the company or trust has to lodge an FBT return and pay the FBT.

So most sole directors and shareholders of family companies pay the company the taxable value to avoid having to lodge an FBT return. There is usually no cash payment, but just a debit against shareholder loan.

10 – Div 7A

Booking the employee contribution against shareholder loan in Step 9 (as a company or trust) might give you a Div 7A problem, if you owe the company or trust at the end of the financial year.

If you (or anybody associated with you) owes the company or trust at year end, Div 7A wants to treat that debt as an unfranked dividend unless you have a Div 7A agreement.

So get a Div 7A agreement or reduce the distributable surplus to nil and voila: Your Div 7A problem is sorted. But for this one ask an accountant to help you.

Summary

So these are 10 steps to claim a deduction for your car. Just go through these step by step. And give me a call if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

 

paying employee accommodation

Paying Employee Accommodation

You want to expand into another state and so one of your managers moves to the new location. To sweeten the deal, you start paying employee accommodation. You pay their rent. Sounds straight forward, doesn’t it?

Paying Employee Accommodation

The problem is that the tax status of these rent payments might take a little time to sort out. Paying employee accommodation, you have five options.

Option 1

Your employee rents the house and you compensate them. Either by reimbursing them or increasing their salary or whatever you call this extra payment.

The bottom line is that your employee can’t tax deduct the rent since a private expense. But pays tax on the extra cash you pay them to cover the rent. You on the other hand get to tax deduct everything you pay.

Option 2

You rent the house and your employee pays nothing extra.

Now you are in FBT territory. FBT stands for Fringe Benefit Tax. The rent payment constitutes a housing benefit covered by Division 6 FBT Assessment Act. And so you pay FBT on it.

You get a tax deduction for the full rent as well as the FBT you pay on the rent. Your employee’s tax return is unaffected.

You calculate the FBT as: Taxable value (less employee contribution) x 1.8868 x 47%

So let’s say the annual rent is $10k – no GST since residential rent. In that case you would pay $8,867.96 FBT ($10k x 1.8868 x 0.47 = $8,867.96).

Option 3

You rent the house but your employee reimburses you for the rent. Your FBT is nil: ($10k less $10k) x 1.8868 x 0.47 = nil. Your employee’s tax return is unaffected apart from additional tax on any potential wage increase.

Option 4

This one often gives you the best outcome. You use the temporary accommodation exemption.

You rent the house without any employee contribution. But you keep the arrangement limited to 4 or 6 months while your employee actively looks for permanent accommodation. In that case no FBT to pay and you still get the full tax deduction.

This exemption is usually limited to 4 months but can be extended with an employee declaration to 6 months or even 12 months.

Option 5

This one only applies if your employee keeps their old place and starts living away from home. In that case some or all of the rent and food you cover while away is FBT free as a living-away-from-home allowance for up to 12 months.

Does this make sense? Just give me a call if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Jobkeeper Payment Cycles

Jobkeeper Payment Cycles

Jobkeeper runs over 26 fortnights from 30 March 2020 to 28 March 2021. That is 26 Jobkeeper payment cycles. Here are the relevant dates.

Jobkeeper Payment Cycles

The first round of Jobkeeper covers two quarters: June and September 2020. Its modified extension covers two more quarters: December 2020 and March 2021.

Jobkeeper 1.0

Jobkeeper 1.0 started on 30 March 2020 and ran over 13 fortnightly payment cycles to 27 September 2020, paying $1,500 per fortnight per eligible employee.

1 – 30 March to 12 April 2020

2 – 13 April to 26 April 2020

3 – 27 April to 10 May 2020

4 – 11 May to 24 May 2020

5 – 25 May to 7 June 2020

6 – 8 June to 21 June 2020

7 – 22 June to 5 July 2020

8 – 6 July to 19 July 2020

9 – 20 July to 2 August 2020

10 – 3 August to 16 August 2020

11 – 17 August to 30 August 2020

12 – 31 August to 13 September 2020

13 – 14 September to 27 September 2020

So all up you should have received 13 payments of $1,500 per employee, so all up $19,500 per eligible employee.

Jobkeeper 2.0

Jobkeeper 2.0 started on 28 September 2020 and runs until 28 March 2021, but rates change. To be eligible as an employer from 28 September onwards you must have had an actual turnover drop of at least 30% in the relevant quarter. So no more projected turnovers. It is all based on actual turnovers now.

December Quarter

From 28 September 2020 to 3 January 2021 Jobkeeper has dropped to $1,200 per fortnight per eligible full-time employee and $750 per part-time employee.

14 – 28 September 2020 to 11 October 2020

15 – 12 October 2020 to 25 October 2020

16 – 26 October 2020 to 8 November 2020

17 – 9 November 2020 to 22 November 2020

18 – 23 November 2020 to 6 December 2020

19 – 7 December 2020 to 20 December 2020

20 – 21 December 2020 to 3 January 2021

March Quarter

From 4 January to 28 March 2021 Jobkeeper drops down to $1,000 and $650 per full-time and part-time employee respectively.

21 – 4 January to 17 January 2021

22 – 18 January to 31 January 2021

23 – 1 February to 14 February 2021

24 – 15 February to 28 February 2021

25 – 1 March to 14 March 2021

26 – 15 March to 28 March 2021

So these are the 26 Jobkeeper payment cycles.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

How To Take Cash Out of Your Company

Take Cash Out Of Your Company

How to take cash out of your company without getting hit with a massive tax bill?

How To Take Cash Out of Your Company

Being a sole trader or partnership, one thing is really simple: taking cash out. No strings attached. Your business bank account is all yours. As a company, it it isn’t. 

Sole Trader and Partnership

As a sole trader or partnership, your business and you are one. Your business is not a separate legal entity, but part of you. So your business cash is your cash. 

How much you take doesn’t affect your tax position. You already paid tax on the business profits at your marginal tax rate.

Company

But all this changes in a company. Now you and your business are no longer one, but two. You are a legal entity. And your company is another. The company’s cash is no longer your cash.

So how do you take money out of your company? There are 5 ways and just those 5 – there is no other way.

1 – Wages

The company pays you a wage. Any PAYG withholding you receive back as a tax offset when you do your individual tax return.

Wages are included in your assessable income. So you pay tax on any wages you receive.

2 – Dividends

The company declares and pays you a dividend, hopefully with franking credits attached. Franking credits give you a refundable tax offset and hence are like cash. They are a refund of the tax the company already paid.

Dividends are included in your assessable income. So you pay tax on any dividends you receive, but with a tax offset for any franking credits.

3 – Shareholder Loan

You just take money out of the company and book it against shareholder or director loan. Or you pay private expenses from your company’s bank account. Nobody says that you can’t do that. You can.

But the crux is that unless you pay this back by the time your tax return is due, this loan will be treated as a dividend. So it gets included in your taxable income and you pay tax on it. Unless….you make it a Div 7A loan.

4 – Div 7A Loan

This is a common way to take money out of a company – for up to 7 or 15 years – without it hitting your individual tax return as income. You need a formal loan agreement and minimum yearly repayments of interest and principal.

But a Div 7A loan is only a temporary solution. In the end you have to pay it all back. And then your money is back in the company – looking for a new way out.

5 – Capital Distribution

Amounts sitting in your capital profits reserve, for example pre-CGT capital gains, are distributed as capital upon liquidation of your company.

Capital distributions receive generous tax concessions (50% CGT discount, small business CGT concessions), so you pay a lot less tax than if you had received this money as wages or dividends.

So that’s all you have. Those 5 ways. Does all this make sense? Just give me a call, if you get stuck.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.

Instalment Activity Statement

Instalment Activity Statement

IAS stands for Instalment Activity Statement. Think of it as a gap filler when you don’t have to lodge a BAS for a certain period.

Instalment Activity Statement

The Instalment Activity Statement (IAS) covers PAYG instalments, PAYG withholding and ABN withholding. These three – nothing else. So no GST.

Your IAS comes in, when a particular period is not covered by your BAS. For example, when you report PAYG W on a monthly basis but your GST on a quarterly basis.

PAYG Instalments

The ATO will tell you whether, when and how much you need to pay in PAYG instalments on your so-called instalment income.

Your instalment income includes dividends, interest, profits you made as a sole trader or through a partnership and other income that is not subject to any other withholding, but excluding capital gains. 

PAYG Withholding

For PAYG withholding you are either a small, medium or large withholder depending on your PAYG withholding. 

As a small withholder (less than $25,000 of PAYG W) you report and pay quarterly – through your BAS if you report GST quarterly, otherwise your IAS.

As a medium withholder ($25k to $1m of PAYG W) you report and pay monthly – whether through your BAS or IAS depends on what you do for GST.

Large withholders (more tha $1m) are complicated, so let’s put those aside.

ABN Withholding

If a supplier does not provide an ABN to you for goods and services of more than $75 (excluding GST), you need to withhold the top rate of tax from the payment and report this through your IAS or BAS.

IAS v BAS

If you are not registered for GST, you don’t have any Business Activity Statements (BAS) to worry about. All your reporting is done through an IAS – either monthly, quarterly or annually.

But if you are registered for GST, then it gets more complicated, especially if your GST and PAYG instalments or withholding are on different reporting cycles.

You might do your BAS quarterly but might be a medium withholder for PAYG Withholding and hence need to report PAYG W on a monthly basis. In that case you do both. You lodge your BAS quarterly, but then lodge an IAS for the months in between.

Does this make sense so far? Just call me if you get stuck. My number is 0407 909 779. I am Heide.

 

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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.

Liability limited by a scheme approved under Professional Standards Legislation.