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ATO Clamping Down on Clothing Deductions

Taxpayers who claim deductions for work-related clothing and laundry expenses may find themselves under the ATO's microscope this tax time. Even if your claim is relatively small, penalties can apply for incorrect claims. Find out what categories are allowed and what records you need to keep.

If your work-related clothing falls into one of the following three categories, you can claim the purchase cost and the costs of laundering that clothing:

  1. Uniforms. To qualify, your uniform must be both unique (designed only for your employer) and distinctive (including your employer's logo and not available to the public). This means you can't make claims for non-branded uniforms. And if your uniform is compulsory, you may also be able to claim shoes, socks and stockings provided they're an essential part of the uniform. Non-compulsory uniforms have much tighter rules.
  2. Occupation-specific clothing. This is clothing that is unique to your occupation, is not "everyday" in nature and allows the public to identify your occupation, such as a chef's checked trousers or a barrister's robes. In contrast, a bartender's black trousers or a swimming instructor's swimwear wouldn't be allowable.
  3. Protective clothing. To be eligible, the clothing must offer a sufficient level of protection against injury or illness in your work setting. Typical examples include high-visibility clothing, steel-capped boots, non-slip shoes, smocks/aprons and fire-resistant clothing.

The ATO is particularly concerned that many taxpayers incorrectly claim for ordinary clothing, like suits or black work trousers, or formal clothes to wear to work functions.

For total clothing and laundry claims of up to $150, you aren't required to keep detailed records. However, the ATO stresses that taxpayers aren't "automatically" entitled to a $150 deduction – you must have actually incurred the expenses you claim. The ATO can still ask you to substantiate your claim, and can contact your employer to verify its clothing requirements.

If your total claim is under $150, you can calculate your laundry claim using a $1 per load rate where all the clothing is work-related, and 50 cents per load where other clothes are in the load.

If your total claim for clothing and laundry exceeds $150 (and your total claim for work-related expenses exceeds $300), you'll need to keep receipts. To prove your laundry costs, you'll need to keep a diary for a representative one-month period.

Talk to us for expert assistance with all of your work-related expense claims. We'll help you claim everything you're entitled to, while keeping the ATO happy.

Is your Farm a Hobby or a Business?

As you sip a drop from the latest vintage you've crushed with the toes of your family and friends, is it possible that turning these vines into wine has ventured into primary production, and this happy hobby has become a business?

How can you tell? Defining "primary production" and "business" is no problem. Figuring out if a business of primary production is being carried on in your particular case is not so easy.

First, let's look at the definitions. "Business" is clearly defined to include any profession, trade, employment, vocation or calling (other than an occupation as an employee), and "primary production" broadly refers to plant or animal cultivation (or both); fishing or pearling (or both); or tree farming or felling (or both).

Determining whether a business of primary production is being carried on requires both these definitions to be satisfied, but neither provides a simple test for when the nature and extent of your activities amounts to the carrying on of a business.

Fortunately, there are a number of indicators, courtesy of case law, that give some direction, but the ATO emphasises that no one indicator will nail it.

It's a matter of weighing up all the relevant indicators in each individual case. The indicators include things like the intention of the taxpayer (do they intend to engage in business and to make a profit?), the size and scale of activities, whether there is repetition and regularity, and many other factors.

But why does it matter? Defining whether you are carrying on a hobby or a primary production business matters because there are tax considerations for both activities, such as the following.

If it's a hobby you can enjoy the activity without any reporting obligations. You don't need to declare any profit from the activity, but you can't claim any losses. Also, without an ABN, to supply another business requires the completion of some paperwork, otherwise tax will be withheld at the highest rate.

If your hobby becomes a primary production business, you need to declare your income to the ATO, get an ABN and keep tax records. You can also take advantage of tax concessions (like the $30,000 instant asset write-off) and claim general business deductions for your expenses (unless you're offsetting a loss against other income, in which case you need to satisfy the ATO's "non-commercial loss" tests or defer your loss until you make a profit).

If it's all enough to turn you to drink, come and see us for some expert advice and guidance on the most tax-effective way forward for your farm!

Hiring independent contractors can be a flexible staffing solution for many businesses, but did you know that some workers who are genuinely independent contractors are still entitled to compulsory superannuation contributions? Find out what test the ATO applies and check whether your business has its super obligations covered. If a worker is not an employee in the general sense but is hired under "a contract that is wholly or principally for the labour of the person", the worker is deemed an employee for superannuation purposes, even if they have an Australian Business Number. This means the hirer must make superannuation guarantee (SG) contributions of 9.5% (in relation to the part of the contract that is for labour). Hirers can't meet this obligation simply by paying the worker an additional 9.5% – they must actually make contributions to the worker's super fund. So what sort of contracts are captured? The ATO's view is that a contract is "wholly or principally for labour" when three key requirements are all met. First, the person must be paid "mainly" for their labour (if not entirely), and the ATO interprets this as "more than half the dollar value" of the contract being for labour. Labour includes not only physical work, but also mental and artistic effort. The second requirement is that the person is paid for their labour, not to achieve a result. Being paid by the hour suggests the person is paid for their labour. Third, the person must personally perform the work and must not be able to delegate to someone else. All kinds of workers can be captured. Typical examples might include freelancers such as programmers, editors, graphic designers or administrative support workers who are paid by the hour (not for a specific result) and can't delegate the work to someone else. Similarly, labourers and other contractors performing physical work could be captured. The rule can also extend to individuals in sophisticated business structuring arrangements. In a recent decision, the Federal Court found that a dentist who had sold his dental practice to a third party and continued to work as a dentist for that practice was an independent contractor, but had been working under a contract "wholly or principally for labour". The new owners were therefore required to make minimum SG contributions for him. Don't wait for the ATO to come knocking. Contact us today for assistance in reviewing your contractor arrangements and ensure your business is protected.

Unsure about the instant asset write-off?

You may have heard about the "instant asset write-off", but do you understand exactly how it can benefit your business? Read our case study for insight into how the write-off works, and what you need to do by 30 June 2020 to take advantage of this limited-time incentive.

The write-off allows small and medium businesses (with turnover up to $50 million) to claim a full deduction for any depreciating asset costing up to $30,000 in the year they first use it, rather than having to deduct the cost over several years under the usual depreciation rules. It's a temporary measure and unless there are further government announcements, the threshold will return to $1,000 from 1 July 2020.

Case study

David runs a distribution business with annual turnover of $1.4 million. He has been thinking about purchasing a computer upgrade (costing $8,000), an extra forklift ($24,000) and a new van ($35,000), which David would use 20% of the time for personal use.

The $30,000 threshold is a per asset threshold, so the business could claim both the $8,000 computer upgrade and $24,000 forklift under the write-off, even though these total $32,000. The $35,000 vehicle won't qualify. Even though businesses may only claim the write-off for the business use proportion of an asset (in this case 80% or $28,000), the full cost of the asset must still be below the $30,000 threshold. The vehicle would be subject to the usual depreciation rules.

To qualify, David must do two things if he wishes to utilise the $30,000 write-off. First, he must purchase the asset by 30 June 2020. For small businesses like David's (with turnover under $10 million), the purchase can go as far back as 13 May 2015 (subject to the "first use/installation" rule discussed below).

If David's business turnover was between $10 million and $50 million, the purchase would need to have been made after 2 April 2019 (when the measure became available to medium businesses).

Second, the asset must be first used, or installed ready for use, on or before 30 June 2020. This means David wouldn't qualify if he buys the asset, but it's not delivered until after 30 June 2020. If a small business purchased and also first used or installed an asset on or before 2 April 2019, a lower threshold will apply. Talk to your adviser about the tax treatment of that purchase.

If you've purchased new equipment for your business, contact us today to explore whether the write-off can work for you. 

Small Business CGT Concessions

The small business capital gains tax (CGT) concessions can save businesses some serious tax – and help business owners significantly boost their superannuation – but it's essential that you keep the right records, particularly for when the time comes to sell. Find out what your business should be doing now to keep the ATO at bay in the future.

Your tax adviser can help you consider whether your business will qualify for this small business relief. If so, you could potentially access one or more of the following concessions:

  • Where the asset is owned for at least 15 years and sold in connection with your retirement: you can potentially disregard the entire capital gain. You can also contribute proceeds of up to $1,515,000 into superannuation under your lifetime "CGT cap".
  • Alternatively, you can disregard up to $500,000 of the capital gain provided you make a superannuation contribution equal to that amount if you're aged under 55.
  • You may also have the choice to apply a 50% reduction to your capital gain (on top of the regular discount for assets held for at least 12 months), and/or defer the gain until later.

However, business owners taking advantage of these generous concessions should understand they may receive a "please explain" follow-up from the ATO. It's therefore essential to record all relevant information about your business assets so that you can later substantiate your CGT claim. This includes purchase information (date of purchase, the price you paid, any stamp duty and legal fees you paid) and ongoing costs (repairs, insurance, installation costs and improvement costs).

Usually, you need to keep all records until at least five years after the CGT event (generally, when you sell), so for an asset you purchased in 2002 and sold in 2019, you'd need to keep all the purchase records until 2024! Alternatively, keeping a CGT "asset register" can make record-keeping simpler. This is a register where you keep relevant information for all your CGT assets, and a major advantage is that once an entry is certified by a tax agent, you only need to keep the original records for five years from that date.

Want to simplify your record-keeping or need help reconstructing records that aren't up-to-date? Don't jeopardise your future tax planning – talk to us today for expert assistance in ensuring your business will be ready to take advantage of the CGT concessions.

The way we approach tax matters can sometimes end up making a big difference to our bottom line and stress levels. Here are three tips to help individual taxpayers achieve a better outcome when lodging and dealing with the ATO this tax time. 

Tip one: Get help with debts early: If you're experiencing financial difficulties, there are a number of ways the ATO can assist. If you can't pay your tax bill, the ATO encourages you to contact them early to discuss your options. For tax bills under $100,000 you can set up a payment plan online through myGov, or through your tax agent. For bigger debts, contact the ATO to discuss a plan. The ATO has power to provide debt relief from an individual's tax bill (in part or in full) if payment would leave them unable to afford food, clothing, accommodation, medical treatment, education or other necessities. In 2017–2018, the ATO granted 2,174 full or partial releases. A good tip for anyone having trouble paying their tax bill is to stay on top of their lodgment obligations. This shows the ATO you're aware of your obligations and you'll avoid penalties for non-lodgment. 

Tip two: Stay off the ATO's radar: No one wants to be audited, so it pays to know the following "red flags" the ATO looks for when analysing its vast data sources, and it may help you identify when to seek professional advice: unusually high work-related expense claims; rental expenses, especially those inconsistent with rental income or other ATO data; undeclared capital gains and income; and taxpayers who don't lodge returns on time! 

Tip three: Manage disputes efficiently: There are many options for resolving tax disputes, ranging from lodging an objection, seeking external review, alternative dispute resolution and litigation. However, the ATO wants to resolve tax disputes quickly and fairly. The ATO's "in-house" facilitation service gives individuals (and small businesses) free access to an impartial ATO mediator who will take the taxpayer and ATO case officers through the issues in dispute and attempt to reach a resolution. It's a voluntary process and can be undertaken at any time from the early audit stage up to and including the litigation stage. 

In all of your dealings with the ATO, we're here to support you. Whether it's a tax debt, a disputed assessment or a complicated deduction you're not sure about claiming, our experts will guide you every step of the way and help you achieve the best outcome

Have you run a small business that has ceased or paused operations? Or perhaps you've been hired as an ABN contractor? The ATO is cleaning up the Australian Business Register and is on the lookout for people who may not be entitled to hold an ABN.

This year, the ATO has been focused on improving the integrity of the Australian Business Register (ABR). You may have even heard that the ATO has been "bulk cancelling" a large number of ABNs. Only entities that "carry on an enterprise" are entitled to hold an ABN. An enterprise includes running a business, as well as other activities like leasing property or being the trustee of an SMSF. It does not include working as an employee.

The ATO is focused on identifying the following types of ABN holders who are not entitled to hold their ABN: businesses that are no longer active; businesses that hold multiple ABNs; and workers who are incorrectly classified as contractors rather than employees (discussed below).

The ATO is also concerned that some businesses are incorrectly classifying their workers as "independent contractors" when in fact they are likely to be "employees". In such cases, the employer may ask the worker to obtain an ABN and call the arrangement "contracting". Unfortunately, this illegal practice is sometimes done to avoid paying entitlements like award wages and superannuation contributions.

If you hold an ABN, you must update the register within 28 days of becoming aware of a relevant change. This includes things like your contact details (including your business address) and your main business activity and business category.

You should cancel your ABN if your business has been sold or is no longer operating. Before cancelling your ABN you should make sure you've complied with all of your lodgement and reporting obligations. You may also need to cancel your ABN if you're changing your business structure (eg from a sole trader to a company) and then apply for a new ABN. Of course, you should get professional advice before changing your business structure to make sure you understand the associated tax consequences.

Don't stress over business administration – get help from the professionals. Whether you're thinking of starting a new business or need help sorting out a registration issue, we can handle all of your ABN registration needs, as well as related registrations like GST, PAYG and business names.


ATO Benchmarks Can Help You

The ATO has released its latest benchmark data to help businesses in over 100 industries compare their performance against competitors. These valuable benchmarks can help you assess measures like your cost of sales or total expenses, among others, which can greatly assist in gauging business performance and spotting tax compliance risks.

How can I use this data?

Businesses can use the data to help them assess their performance against the standards for their industry. For example, if your expenses seem high compared to your industry's benchmark range, this may prompt you to explore ways you can improve profitability. Additionally, if your figures are outside the benchmark range, you might consider reviewing your records to ensure your business is accurately recording all income and expenses.

Naturally, the ATO also uses this data for compliance purposes. By identifying businesses that are "outliers" compared to their industry benchmarks, the ATO is better able to select businesses for audit. This might include businesses that are reporting significantly less income than competitors relative to expenses or claiming significantly more expenses relative to income.


Being outside a benchmark range does not necessarily mean that something is wrong, but it may lead the ATO to ask questions. ATO Assistant Commissioner Peter Holt likens the benchmarks to the red and yellow flags at the beach: "If you stay between the flags, you'll be less likely to attract our attention."


What benchmarks are available?

The ATO calculates the benchmarks using data from the tax returns and activity statements of over 1.5 million small businesses. The latest updated benchmarks are sourced from the 2016–2017 income year. The types of benchmarks that the ATO publishes for each industry vary, but often include useful benchmark information such as:

  • cost of sales as a percentage of turnover (and average cost of sales);
  • total expenses as a percentage of turnover (and average total expenses);
  • non-capital purchases as a percentage of total sales;
  • labour as a percentage of turnover;
  • rent as a percentage of turnover; and
  • motor vehicle expenses as a percentage of turnover.

Most of these benchmarks are expressed as a range (eg "23% to 33%"), and for each industry the ATO provides different benchmark ranges for different annual turnover ranges.

Data is available for over 100 industries across the following categories:

  • Accommodation and food.
  • Building and construction trade services.
  • Education, training, recreation and support services.
  • Health care and personal services.
  • Manufacturing.
  • Automotive electrical services.
  • Machinery and equipment repair and maintenance.
  • Architectural services.
  • Veterinary services.
  • Retail trade.
  • Transport, postal and warehousing.

How to access the benchmarks

An easy and quick way to access the data is to use the "business performance check" tool on the ATO app. After entering a few details about your business, the app will show you how your business compares to your industry's benchmark ranges. The ATO will not record the information that you enter when using this tool.

Alternatively, you can manually view your industry's data on the ATO website, where it is arranged both alphabetically (A to Z list of industries) and by industry category.

How is your business performing?

Contact us today for expert advice to help your business succeed. We can help you assess how your business measures up against industry benchmarks, review record-keeping for tax compliance and develop effective strategies for improving your business' profitability.

STP - It's Not a Disease!

 

The government is getting tough on employers who fail to make compulsory superannuation guarantee (SG) contributions. A host of measures are being implemented, ranging from improved reporting systems through to proposed employer penalties of up to 12 months' imprisonment. Here, we examine two particular initiatives that will require some businesses to take action in the next few months.

New reporting standard

On 1 July 2018, Single Touch Payroll (STP) reporting became mandatory for employers with 20 or more employees. Single Touch Payroll (STP) is a change to the way employers report their employees' tax and super information to the ATO. Using payroll or accounting software that offers STP, employers send their employees' tax and super information to the ATO each time they run their payroll and pay their employees. The information is sent to them either directly from the software.

Importantly for small businesses, the government wants to extend STP reporting to all employers from 1 July 2019. It says that mandatory STP reporting for all businesses, regardless of their size, will improve the ATO's ability to monitor compliance and take action when required.

Although the legislation to implement this measure is still before Parliament, we should assume the changes will proceed and plan early. Businesses, if you have not already done so, should ask their current payroll solution provider what software updates (or new products) are required in order to become STP-compliant.

Small businesses without any current payroll software should not panic. The ATO says that over 30 software providers propose to release a low-cost STP solution (costing less than $10 per month) from early 2019, which may include simple solutions such as mobile apps or portals.

 Please get in touch with us if your would like us to work through a solution for you.

Amnesty for underpayments

The government is proposing a 12-month "amnesty" to allow employers to voluntarily disclose and correct any historical underpayments of SG contributions for any period up to 31 March 2018 without incurring penalties or the usual administration fee ($20 per employee per quarter). This is provided the ATO has not already commenced (or given notice of) a compliance audit of that employer. Additionally, employers will be entitled to claim deductions for the catch-up payments they make under the amnesty. (Under the usual rules, such payments are not deductible.) Employers will, however, still need to pay the usual interest charges.

While these are welcome incentives for employers to make a disclosure, there is one problem: legislation to enable the amnesty is still before Parliament, with the amnesty slated to apply from 24 May 2018 to 23 May 2019. There is no guarantee the legislation will pass, so what does this mean for employers wishing to take advantage of the amnesty?

If an employer discloses now and the amnesty legislation is not passed, the ATO will be required to administer the usual laws. This means catch-up payments will be non-deductible and penalties and administration fees will apply. However, the ATO may view the employer's prompt disclosure favourably when deciding whether to use its discretion to reduce the penalties.

On the other hand, taking a "wait and see" approach carries considerable risks. The ATO says "employers who do not disclose their SG shortfalls during the amnesty period may face harsher penalties if they are audited in the future". There is also a risk the ATO could commence an audit while the employer waits, particularly if an employee contacts the ATO about outstanding SG contributions owed to them. This would disqualify the employer from the amnesty (if it became law).

Ensure your business is SG-compliant

Now is an important time for businesses to get their SG affairs in order. Talk to us today to ensure your small business is ready for STP reporting. For any employer with outstanding underpayments of SG contributions, we can assist with what is a lengthy process of making a voluntary disclosure to the ATO.

Disasters & Employee Entitlements

          

 

With parts of North Queensland being declared a disaster zone, you should take heed to ensure not only your own safety but the safety of you staff.


During this time, many employers will face the difficulties of managing the continued operation of business under strained circumstances. It is important for employers to remember that employees may have entitlements under their award or agreements that are relevant when an they're unable to attend work due to an emergency or natural disaster.

 

Here is some information, courtesy of CCIQ, to help you determine the position if employee's cannot attend work. 


What if an employer has to temporarily close its business?
Employers will have to determine employee entitlements if they have to temporarily close as a result of a natural disaster or emergency. This may include offering the choice of taking accrued paid leave or, in some cases, standing down employees.


The Fair Work Act 2009 (FW Act) allows employers to stand down employees when there is no useful work for them do. This can only happen if the reason for the stand down is outside the employer's control, such as a natural disaster. A stand down can be unpaid, but an employer may choose to pay their employees instead. Employees may be entitled to access other types of paid leave under certain circumstances (see "alternatives to standing down employees" below).


Stand down provisions only apply when an employee's award, agreement or employment contract don't contain stand down provisions that deal with the same circumstances. You should check your award, agreement or employment contract to see if it contains any stand down provisions.


If an employer does stand down employees, it's best practice to tell those employees in writing (where possible), including:

· the start date of the stand down

· whether the employees will or will not be paid

· the effect on other employment entitlements.

 

An employer should also try to update employees about when they believe the stand down will end.


What are the alternatives to standing down employees?


Before an employer stands down employees without pay there are other options that they may wish to consider. These may include:

· Inviting employees to take a period of accrued paid leave (for example, annual leave).

· Requiring employees to take annual leave if their award or agreement allows it, or if the employee is award-free.

 

If there are multiple worksites and not all sites are affected, consider voluntary work sharing arrangements. For example, employees at non-affected sites may offer to take paid leave while their position is temporarily filled by someone from an affected site.


Where appropriate, consider flexible arrangements such as working from home.


Any arrangements to alter an employee's working patterns would need to be made in accordance with the FW Act and any relevant award or agreement.


Are employees able to take leave to take care of themselves or their family?


Natural disasters often result in employees requiring time off to care for themselves or their family, or due to an emergency affecting their family members. Employers should keep in mind the health and wellbeing of their staff when granting access to leave entitlements.


Personal/carer's leave


Employees (other than casual employees) affected by a natural disaster or emergency may have an entitlement to take paid personal/carer's leave or compassionate leave.


For example, if an employee is injured during a flood or bushfire they may be entitled to personal leave. An employee would also be eligible for carer's leave if their child's school closed due to a natural disaster or emergency.


Employees who have used all of their paid personal/carer's leave entitlement, and casual employees, are entitled to two days unpaid carer's leave per occasion to provide care and support to a family or household member due to illness, injury or in the event of an unexpected emergency.


Information for those who want to assist with disaster-relief activities


Employees may be requested to volunteer to assist the community with disaster relief activities through recognised emergency management bodies like the State Emergency Service. Employers and employees should be aware of what entitlements apply to those employees who wish to volunteer in these activities.


Community service leave


The NES entitles employees who are members of a recognised emergency management body to take unpaid community service leave for certain emergency management activities such as dealing with a natural disaster.


Awards and agreements may also contain specific provisions in relation to community service leave in addition to the NES.


Under the NES, the amount of time that can be taken is not specified, however it must be reasonable taking into account:

· the time that the employee is engaged in the activity,

· reasonable travel time associated with the activity

· reasonable rest time immediately following the activity.

 

An employee who wants to take a period of community service leave must tell their employer as soon as possible, including the expected period of the absence and provide any required evidence of the reason for the leave. In addition, an employee must also be:

  1. engaging in an activity that involves dealing with an emergency or natural disaster
  2. engaging in the activity on a voluntary basis (whether or not the employee directly or indirectly takes or agrees to take an honorarium, gratuity or similar payment wholly or partly for engaging in the activity)
  3. a member of, or has a member-like association with, a recognised emergency management body
  4. requested to engage in an activity, or it would be reasonable to expect that such a request would have been made if circumstances had permitted.

  

If you are a member of CCIQ and have any questions regarding employment conditions during natural disasters and emergencies they can be contacted on 1300 135 822.

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