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

If you want to follow the Vivid team please like us on Facebook by clicking HERE

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.

Oh and if you like this, please like our Facebook page for regular updates!

Ditch your paper receipts, there’s an app for that

Save time • Save money • Save space • Increase accuracy

At Vivid Chartered Accountants, we aim to live by our vision of making our clients’ lives better. We know that you’d rather be getting on with business than coding receipts or sorting through paperwork.

By now, you’ll have heard us rave on about Xero – Beautiful accounting software for beautiful people. But have you heard about the award-winning Receipt Bank?

Receipt Bank, using what can only be described as black magic, extracts and uploads all the data you would otherwise have to manually enter into Xero. No more carpal tunnel syndrome from all that data entry – save that for tweeting about how much you love your accounting software.

Instead, using the Receipt Bank iPhone or Android app, take a picture of your receipt, and let Receipt bank do the rest.  

Since you already know how to take the perfect selfie, taking pictures of receipts is a breeze - no selfie stick required! But instead of having a picture of yourself that will be the envy of all of your friends, Receipt Bank will have found the receipt’s supplier, date, receipt number, amount spent, GST, and more.

Receipt Bank can do the same for supplier invoices too – once the data has been extracted, these can be exported directly to the Purchases tab in Xero, ready for you to approve and schedule for payment.

Save time– cut down on data entry and sorting through paper records

Taking a photo of your receipts as you get them will remove the dreaded weekly or monthly sit-down in front of your computer to reconcile your accounts. Receipt Bank will become a better friend than your favourite contact on Snapchat.

Receipt Bank doesn’t stop there, it can implement different rules for each supplier, so once you’ve set up the rules you want, such as the payment terms and method, you can trust Receipt Bank export the data automatically and accurately.

Save money – capture every expense to maximise your claimable expenses

These little purchases can add up, and when filing a receipt is easier than instragramming your lunch, there’s no need for you to miss a thing. By the time you’re back in the office and logged on to Xero, Receipt Bank should have extracted all the data you need to code your purchase. #nofilter

Save space – your receipts are linked to the bank expense, and archived in accordance with the ATO’s requirements

Possibly the best feature of Receipt Bank for those who love the environment or those who hate paperwork, is that Receipt Bank uploads an electronic copy of the receipt which is compliant with the ATO standards. Receipt Bank will keep each receipt archived for 7 years, so you can throw that receipt in the recycling bin. It’s your own personal Pinterest of sweet tax receipts.

Xero and Receipt Bank are like really good Facebook friends, constantly tagging each other in status updates. If Receipt Bank finds a purchase in Xero that matches, it will let you know.

The receipt is automatically exported and attached right alongside the purchase, so there’s no flicking back and forth between records.

If you want to hear someone rave about Receipt Bank non-stop, call Tamara, our practice manager. If you want to learn more, and try out the software to see just how much it will benefit your business, contact our office.

Our office will be closed from 12pm on Thursday the 24th of December and will re-open on Monday the 4th of January.  We will also be closed on the afternoon of Friday the 18th of December for our Christmas party. We wish you all a safe and happy festive season.