Federal Budget 2016-17

Last night, the staff here at Vivid Chartered Accountants had their (pretty/handsome) faces pressed to their TV screens while they listened to Scott Morrison deliver his budget speech.

No doubt you have all been bombarded with information on the budget, so we have summarised the key announcements, with further details regarding the tax changes following:

Small Business

• The government has changed the definition of a small business by increasing the turnover threshold (gross sales excluding GST) from $2 million to $10 million.
• Small businesses will continue to have access to the $20,000 instant asset write-off until 30 June 2017
• The company tax rate for small business entities will be reduced (28.5% in 2016) to 27.5%. The rate is set to reduce further to 27% in 2024-25 and then by 1 percent per year until it reaches 25% in 2026-27

• Unincorporated businesses (sole traders and partnerships) will receive an increase in the tax discount (5% in 2016) to 8% on 1 July 2016. The maximum value of the discount is capped at $1,000

Individual Tax Payers

• The 37% personal income tax threshold will be increased from $80,000 to $87,000 from 1 July 2016 to address bracket creep. The new tax rates will be as follows:

• Foreign residents will also receive the threshold increase from $80,000 to $87,000
• The cap for Division 293 (the additional 15% contributions tax) has come down by $50,000 to $250,000. If your taxable income plus investment losses, fringe benefits, and superannuation contributions exceed $250,000, your super contributions will be hit with an additional 15% tax, taking the tax on your contributions to 30%.
• The temporary budget repair levy of 2% that was payable on an individual’s taxable income above $180,000 will finish as scheduled on 30 June 2017.

Superannuation

• The concessional contributions cap will be lowered to $25,000 from 1 July 2017 (concessional contributions are contributions for which you can claim a tax deduction. For example, the 9.5% super guarantee, salary sacrifice super). The table below outlines of the current and future concessional contribution caps:

Income year	Age and applicable Cap amount
2015-16	<49: $30,000	49+: $35,000
2016-17	<49: $30,000	49+: $35,000
2017-18	All Ages: $25,000

•  If you have less than $500,000 in superannuation, from 1 July 2017 the government will allow additional concessional contributions (see definition above) for “unused cap amounts” from previous years. For example, if you only use $15,000 of your cap in 2017-18, you can contribute $35,000 ($25,000 + $10,000) in 2018-19. Unused cap amounts will be carried forward on a rolling 5-year basis, starting with unused amounts accrued from 1 July 2017.
• From 1 July 2017, superannuation funds will be limited to a cap of $1.6 million in tax-free pension accounts, with balances above this amount returned to accumulation accounts and earnings taxed a 15%. The $1.6 million cap will be indexed in $100,000 increments in line with CPI. Subsequent earnings in the pension accounts will not be considered when calculating caps. Members already in retirement phase with balances in excess of the cap on 1 July 2017 will need to either transfer excess amounts back into accumulation accounts, or withdraw the excess amount from the superannuation fund.
• The tax exemption on earnings on transition to retirement pensions will be removed as of 1 July 2017. Under the changes, the earnings will be taxed as at 15%.
• The government will introduction a lifetime cap of non-concessional contributions cap of $500,000 from budget night (3 May 2016). (Non-concessional contributions are personal contributions that you make after tax) The cap will take into account all non-concessional contributions made after 1 July 2007. Contributions made before last night cannot cause you to breach the cap, however you will no longer be able to make any future non-concessional contributions.
• From 1 July 2017, Government will allow all individuals up to the age of 75 to claim a tax deduction for personal superannuation contributions. Previously, only self-employed individuals under the age of 65 (or 74 if you passed the working test) could claim tax deductions for personal contributions. This change will remove the work test for those aged between 65 and 74.

If you would like any further information, please do not hesitate to contact our office.

We have included a link to the Budget and the Chartered Accountants breakdown, should you wish to read it.

Budget

Chartered Accountants Tax Bulletin

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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