To GST or Not to GST

That is the big question! If Shakespeare were alive today, he would probably be charging you GST on his theatre ticket sales.

“SO WHAT EXACTLY IS THIS GST?! I ONLY KNOW I HAVE TO PAY IT ON EVERYTHING I BUY! LIKE SHAKESPEARE’S TICKETS!”

Relax! Shakespeare is dead. Simply speaking, Goods & Services Tax (GST) is a tax imposed on most of the products/services sold in Australia. If you are running a business, you will probably be required to register for GST at some point.

Don’t worry, it is not as daunting as it seems. The team at Vivid Chartered Accountants is here to help!

We specialise in getting small businesses up and running, and we understand the whole process can be VERY overwhelming. One of the more commonly asked question by new start-ups is, “Should I register for GST?”

“I AM JUST A SMALL BUSINESS… DO I REALLY HAVE TO REGISTER FOR GST?”

The ATO doesn’t force everyone to register for GST. If your annual sales are over $75,000 ($150,000 for non-profit organisations), you are required by the ATO to register. However if you are below this threshold, you can elect to register if you wish to do so.

If you have a new business or expect your business activity to be relatively slow in the first few years, you can choose not to register for GST until you have crossed the threshold.

“OK, BUT HOW DO I REGISTER THEN? DO I CALL THE TAX OFFICE?”

If we helped you set up your business, we will always go through the GST discussion with you. If you do decide to go ahead with the registration or have crossed the threshold, let us know and we will organise the registration for you. We can even backdate it, if needed.

If you would like to register for GST yourself, there are two ways to go about it:

1. Phoning the ATO on 13 28 66 (be prepared for a long wait in the queue)

2. Online via the Business Portal.

“I AM A NEW BUSINESS AND CAN’T AFFORD ANOTHER TAX LIABILITY TO THE ATO!”

Don’t worry, GST really isn't that bad! Registering for GST simply means:

1. You collect GST from your customers and pay it to the ATO, so really you are just a middle man collecting tax for the ATO.

2. When you pay GST on your business purchases, you can claim the 10% GST back from the ATO. This means most of your expenses are effectively 10% cheaper!

So GST should never actually become an expense to your business unless you charge a fixed amount, in which case you might lose 10%.

“SEEMS LIKE A LOT OF WORK KEEPING A RECORD OF ALL THAT GST! HOW DO I MAINTAIN RECORDS THAT ARE ACCEPTED BY THE ATO?”

Easy! With the help of decent accounting software, you can maintain all your GST and financial records without any hassle! Combining cloud-based software like Xero & Receipt Bank, not only can you save HOURS of your precious time, it can also help maintain your records online and have all the information available at your fingertips! And it is ATO-compliant. No more fading receipts or stacks of paperwork. We also provide training to new businesses who need training with any of this software.

In short:

“WHAT IF I AM REGISTERED FOR GST AND WANT OUT?”

No worries! Cancelling your registration is easy. If you are below the ATO thresholds and had previously registered for GST, you can always opt out. Just give us a call and we can sort it out for you!

“AND HOW OFTEN DO I HAVE TO REPORT GST?”

GST reporting is usually done on a quarterly basis for small business, unless you elect to do so on a monthly or annual basis (usually available for businesses that are NOT required to be registered).

BASs are due to be lodged and paid within 28 days following the end of the quarter (or 21 days following the end of a month). The one exception to this is the December quarter BAS, which has an extended deadline (due to the Christmas holidays), of the 28th of February. The ATO does have a heart after all!

Watch out though! It is very easy to spend all your sales revenue on business and other expenses, and then not have the cash to pay for the GST liability. If you are registering for GST and charging clients/customers GST, it is good practice to set aside 10% of your sales revenue so you don’t end up with a cashflow shortage. Your GST liability can accumulate into a massive tax debt quickly, so setting aside money and keeping up-to-date with your quarterly GST lodgements is vital.

Speak to us about starting a GST and Tax Quarantine Plan so that you don’t get trapped by nasty ATO surprises ever again.

So if you are thinking of setting up a new business and need help with the start-up, give us a call or flick through an email and we will be in touch!

Until then….

Changes to work-related motor vehicle deductions

 

There was a subtle, but important, change to the way you can claim your motor vehicle expenses as a tax deduction from 1st July 2015.

What are the changes?

Previously, individuals had the option to use one of four methods to determine their work-related car expenses:

• Cents-per-kilometre
• Logbook method
• The 12% of original value method, and
• One-third of actual expenses incurred.

Commencing 1 July 2015, the changes are:

• The 12% of original value will not be available to use

• The one-third of actual expenses incurred will not be available to use, and
• The three existing rates for cents-per-kilometre, determined by engine size, will be replaced with one rate of 66c per kilometre.

This means you will be able to use either the cents per kilometre method or the logbook method.

Let us simplify the remaining methods for you:

The cents-per-kilometre method

• Your tax deduction is based on the number of business kilometres travelled for the year
• These business kilometres are multiplied by 66c to work out your tax deduction. For example the tax deduction on 3,000 business kilometres would be $1,980.00 (3,000 x 0.66)
• The maximum business kilometres you can claim is 5,000, or $3,300.00.

Since the cents-per-kilometre method has changed to 66c per business kilometre, it is a good time to consider using the logbook method. That is, if you think the deduction you could claim under the logbook method would be higher than the maximum $3,300.00 under the cents-per-kilometre method.

Logbook method

• The deduction under the logbook method is based on the actual running costs of your car
• The actual running costs are then multiplied by your business use percentage to calculate your tax deduction
• To work out your business use percentage you must keep a logbook of the vehicle usage for a minimum of 12 weeks
• Unless your circumstances change, you only need to do a logbook once every 5 years

How easy is that?!

There’s just one catch: you need to complete the logbook in the same year as you are claiming the tax deduction. Therefore if you haven’t kept a logbook in the past you need to start one now!

If you have any questions in relation to these changes, or want our logbook template, please do not hesitate to contact us.

Our office will be closed for the Easter break – we wish you a happy and safe long weekend.

THE B WORD....... 

According to the Australian Bureau of Statistics, Canberrans earn on average the highest wages in the country.

Pictured: Average Canberran:

IF WE EARN SO MUCH WHERE DOES IT GO??

It is very common to hear people say that they have no money or that they don't know where their money goes. Even worse – many people feel as though despite the fact they work hard, they aren’t getting anywhere in terms of their savings. Sad face. L

DOES THIS FEEL LIKE YOU?

Personally I know that I have been guilty of this in the past. I always had a vague idea where my money went, however I couldn’t easily sit down and really pinpoint my expenses. 

This sucked - it meant it was hard to really address where money could be saved, where we might be overspending and in the extreme occasionally things might be double paid without us knowing!

KNOWLEDGE IS POWER ->

VIVID CAN GRANT YOU KNOWLEDGE.

THEREFORE, VIVID CAN MAKE YOU POWERFUL!

Left: Before Vivid                                                            Right: After Vivid

       

How can the team at Vivid make you powerful????

FIRSTLY: With our help, set up a BUDGET (boring right? WRONG. OK partially right, but bear with me). 

The budget should take into account:

• Your estimated income
• Your fixed expenses (mortgage payments or rent, school fees, food) and
• Your variable expenses (entertainment, Foxtel, restaurants) 

Many people have prepared budgets and then never looked at them again. If you do this, then you have completely wasted your time!

You might as well have gone and watched The Cobbler starring Adam Sandler.

An example of peaking in the mid-90s:

 SECONDLY: *IMPORTANT * *IMPORTANT * *IMPORTANT * *IMPORTANT *

• Set up a personal Xero account.
• Input your budget.
• Setup live bank feeds from your bank accounts and credit cards.
• Set up rules for regular expenses (eg: Woolworths – put to food, BP put to Motor Vehicle)

These steps mean the bulk of the data entry is done for you.

• Tell Xero what the other expenses are on a regular basis

This is very easy and Xero remembers a lot of recurring expenses to save you even more time.

What you will find is that with a little (and seriously – it is not a lot) bit of work each week or month, you will see exactly where your money has gone and whether you are on track for your savings targets.

This is an example, which is obviously not tailored for you:

Once this has been done, you too can have the joy of sitting down every month to a family budget meeting. Seriously, the partners and staff at Vivid do it and we are extremely cool:

I think some of you may be shocked at where your money goes.

Knowledge is power – once you know where your money is going, you can choose what to do next!

After you have your budgeting set up you can move onto goal and target setting which we will cover in a future blog post.

If you would like to find out more please CONTACT US

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CGT & Your Castle (Main Residence Exemption)

Every man’s (or woman’s) home is their castle and when it comes time to upgrade to one with a bigger pool room, you are going to want to make sure the tax man gets as little as possible.

You’re going to want to…

Capital Gains Tax

Capital Gains Tax (CGT) is the tax payable on the increase in value of a capital asset from when you bought it (cost base), compared to when you sell it (sales proceeds).

This gain will form part of your assessable income and will be taxed at your marginal tax rate subject to a few potential exemptions and discounts.

So what is classified as your castle (Main Residence)?

Generally, a property is considered your castle if you live in it i.e. it’s your home.

You can only have one main residence at a time.

Thankfully, the government has exempted from tax any capital gain arising on the sale of your main residence. IE if the property was your main residence for the entire time you owned it, any capital gain made on the sale will be fully exempt from CGT.

However, it’s not always clear when a property is your main residence, and often its use or purpose may change over the course of ownership. For example, what if you:

• Rent the property out prior to moving in
• Rent the property out after living in it for a while?
• Buy another house to move in?
• Go overseas or interstate for work and rent it out?

Short answer – IT DEPENDS! Whether or not you can still get a full exemption (or maybe just a partial exemption) will depend on your specific circumstances – TO BE SURE TALK TO US!

THINGS TO CONSIDER:

Six-month rule

Sometimes you find a new dream castle with a pool room SO GOOD you jump in and buy it before you sell your old one! The ATO understands that selling your old home takes time, so whilst they generally only allow one castle to be your main residence at a time, they give you six months from the date your new castle became your home to sell your old one, and still claim it as your main residence (subject to one or two provisos).

If you don’t sell your old home within 6 months, you will have to elect one property to be your main residence. The other property may only be eligible for a partial exemption.

Six-year rule

Generally speaking, when you decide to rent or move out of your home, it is no longer considered your main residence.  However, in some circumstances, you can choose to continue to treat your property as your main residence even after leaving.  But if this choice is made, then you’re NOT able to have another main residence in that period.

Examples of this include if you move out of your home, and decide to rent instead of buying a new property, or decide to leave our golden shores for work, or perhaps just for some serenity.

If you choose to rent out your castle, you will still be entitled to the full capital gains exemption if the property is sold within 6 years of you moving out, so long as you don’t establish another main residence.

Each time you move back in (for a minimum of three consecutive months), and then leave again, the six years will reset.

If you rent your castle out for over six years, the property will be eligible for a partial exemption from CGT.

Market Valuation

The ‘home first used to produce income’ rule impacts the cost base used to calculate capital gains.  Rather than using what you paid for the castle, the property is treated to have been acquired for market value at the time it was first used to produce income.

FINALLY….

You really should make sure that you maximise the law that encourages investment in your castle.

With the increase in property values over the past few decades and the amount generally invested, making the most of the law can literally save you THOUSANDS OF DOLLARS.

If you would like more information about the Castle/Main Residence Exemption or CGT in general, or to find out which rules and exemptions apply to your situation, please contact us.

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