Dear valued clients,
With the new financial year beginning its time for businesses to consider their goals, KPI’s and setup for the new financial year. As it is the end of financial year an online checklist will be sent out to our clients this week, please refer to and complete your checklist early to avoid the rush in finalising your return(s).
As we take a look at our current economic condition, all eyes were on interest rates and the ongoing US-China trade war in June. In Australia, the Reserve Bank cut its official cash rate by 25 basis points to a historic low of 1.25% with more cuts anticipated. The RBA is concerned about emerging signs of a slowing economy. Australia’s annual economic growth fell from 2.3 percent to 1.8 percent in March, the weakest since 2009. On a more positive note, the NAB business confidence index rose from 0.1 points in April to 7.3 points in May, the biggest lift in almost 6 years.
The staff at Prespa Consultancy would like to thank our valued clients for working in partnership with us in 2018/2019. We will continue to work collaboratively with you this financial year to assist in the growth of your personal and business financial goals.
Cheers,
Nick Tsoulakis
Managing Director
BA (Acc), CA, NTAAF, NTAA+, Registered Tax Agent
Smart ways to invest your tax return
Tax time can often feel like a hassle, but it’s all worth it when that tax refund lands in your account. So, what’s the best way to spend it?
With last year’s average refund being $2,574, it’s no small question.i And if you are one of the lucky ones to receive a refund your options are endless. From paying down debt to investing in your future to blowing it all on a big holiday, the choice of how you spend your refund will depend on your goals and your circumstances.
Pay down debt
It may not be particularly glamorous, but paying down any debts you have can be a very wise way to spend your tax refund. Especially because you’ll probably save even more on the future interest you won’t end up paying.
Australians have a whopping $45 billion in credit card debt.ii Consider clearing any overdue balance, and while you’re at it why not reduce your limit so you’re not as likely to go that far again.
You might also consider putting some of your tax refund towards your home loan. Again, a $2,000 reduction in what you owe now could mean a much bigger saving over the lifetime of your loan.
Invest in your future
Your tax refund could also be a fantastic way to pay for an investment in your future.
A good way to start is by putting a little more towards your super. Superannuation is still the most tax effective way of saving for the retirement you dream of, and the interest on the additional contribution now could compound to make a big difference to the overall size of your nest egg.
Investing in your future might also mean taking a short course to upskill, or diversify your talents. There are TAFEs and adult education facilities across the country that offer a plethora of short courses from the vocational, to ones that purely play to personal interest. Have a google and see what’s going on in your neighbourhood.
If you’re feeling generous, you might even consider directing some of your refund towards the future of a loved one. This might include starting a fund to help your kids towards a house deposit, a first car or their future education. Talk to us about what your options are.
Save for a rainy day
It’s awful to think about, but you never know what the future holds, so having a little money aside for a rainy day is never a bad idea. It might help with future medical expenses or a loss of income, or even those everyday unexpected expenses such as a broken fridge or car repairs. Getting in the habit of putting a portion of your tax refund towards a rainy-day fund could make a real difference if life takes a turn for the worse.
Have a little fun
You work hard, and there’s nothing quite like the feeling of having a few extra thousand in the bank. So, you’ll be forgiven if you want to have a little bit of fun. From a weekend away to a retail binge, there are many ways you can blow a tax refund. Our advice to you: be cautious. By all means, splurge on some pampering, but make sure you get the mix right by either reducing any unpaid debt or investing in your future.
The right mix
The truth is you can use your tax refund in a number of ways and none of them are right or wrong. Perhaps the wisest thing to do then is mix it up, spending the bulk of it prudently while saving a little bit just to do something that really makes your heart sing.
i https://www.moneysmart.gov.au/managing-your-money/income-tax/how-australians-spend-their-tax-refunds
ii https://www.abc.net.au/news/2018-07-04/1-in-6-credit-card-users-struggle-under-mountain-of-debt/9936826
Getting on top of tax debt
Although most Aussies pay their tax bill on time, some can’t – or just won’t – pay what they owe.
In the 2017-18 financial year, the ATO collected over $500 billion in liabilities from Australian taxpayers, with 89.5 percent of us paying on time and 95.9 percent paying within 90 days of the due date.
This left 4.1 percent of taxpayers with outstanding tax debts totaling $23.7 billion. Of this, $15.1 billion were tax debts owed by small businesses. That’s a lot of unpaid tax.
Getting taxpayers to pay
So what happens if you don’t pay your tax debts?
If you can’t pay your tax bill on time, it’s important not to panic. The ATO is willing to help, but you must continue lodging your tax returns and activity statements on time, even if you can’t pay on the due date.
Lodging on time helps avoid a penalty for late lodgement and shows the ATO you are aware of your obligations and are doing your best to meet them.
What action the ATO decides to take depends on your circumstances, past behaviour and lodgement and payment history. If you have a good tax payment history or are in serious hardship, you are likely to be treated differently than if you have deliberately set out to avoid paying your tax, or regularly fail to pay your tax debts.
In some circumstances, an individual taxpayer may be released from a tax debt but usually only if you are experiencing serious hardship.
Paying by instalments
If you can’t pay your tax bill by the due date, you may be allowed to set up a payment plan. In 2017-18, it granted 1.1 million payment plans, with 790,000 of these being for small businesses.
The ATO automatically begins charging a daily general interest charge (GIC) on tax debts and the debt continues growing until it is paid. During the July to September 2019 quarter, the GIC annual rate is 8.54 per cent.
Small businesses with an activity statement debt may be able to pay off this type of debt interest-free over 12 months if they meet certain eligibility criteria
What will the ATO do if I don’t pay?
Aside from charging interest, if you don’t pay, the ATO will begin using your future tax refunds or credits to reduce your tax debt. It will also use these amounts to pay any debts you owe to other government agencies, such as overdue child support.
Routine income tax and activity statement debts are often referred to external debt collection agencies. However, tax debts that are being formally disputed are not referred.
Collection agencies are required to notify you in writing before contacting you to negotiate payment.
Taking stronger action
If you don’t reach an agreement with the collection agency, the debt is returned to the ATO. It may then take ‘stronger action’, such as issuing a garnishee notice or director penalty notice. Or it may start insolvency proceedings.
The ATO uses stronger actions with people who are unwilling to work with it, who repeatedly default on agreed payment plans, or who do not take steps to resolve their situation. If you are audited and deliberate avoidance is found, or non-payment continues, the ATO is also likely to use these harsher powers.
Garnishee notices require an employer, bank or trade debtor to pay your money directly to the ATO to reduce your tax debt.
The ATO may also file a claim or summons, which may result in you receiving a bankruptcy notice, or a statutory demand and application to wind up your company.
Don’t ignore a tax debt
Communication is essential when tackling tax debts. It’s also important to act immediately, as your interest bill increases daily.
The first step in getting on top of the situation is to contact the ATO or make an appointment with us to discuss your financial position.
We can also talk to the ATO on your behalf about your options when it comes to repaying or managing your tax debt with a payment plan.
Tax man sizes up clothing claims
Submitting a claim for your work-related clothing expenses is common come tax time, with more than six million Aussies claiming deductions in the past financial year.
But this year it’s a deduction that’s likely to bring your tax return right under the ATO’s spotlight, as the regulator is cracking down on the rapidly growing number of these claims.
What are the rules?
When it comes to claiming work-related clothing, the key thing to remember is only specific types of clothing are deductible. This includes distinctive uniforms and occupation-specific clothing that allows the public to easily recognise your occupation (such as checked trousers for a chef).
You can claim the cost of a unique work uniform if you are not reimbursed by your employer. It must, however, identify you as an employee of the organisation, be compulsory to wear while you are at work, and the uniform policy must be enforced (such as for airline staff or police officers).
Deductions may be available for shoes, socks and stockings if they are an essential part of this uniform and their characteristics are specified in the uniform policy.
The cost of protective clothing or footwear designed to safeguard against injury or illness caused by your job or the environment in which you work, can also be claimed. Examples include hi-vis vests, non-slip shoes for a nurse and steel-capped or rubber boots.
Claims for a non-compulsory work uniform are permitted if the clothing distinctly identifies a particular employer, product or service, but your employer must have registered the uniform design with AusIndustry.
Deductions that don’t measure up
Your employer simply requiring you to wear clothing in a specific colour or brand is not enough to make it a uniform.
A common mistake is to claim conventional work clothing such as black trousers and a white shirt. These are not considered sufficiently distinctive, or unique to your employer to be considered a uniform.
In a recent case, a retail sales assistant claimed more than $700 for store brand clothing she bought and was expected to wear to work. In the ATO’s view it was normal clothing, not a uniform, so her claim was disallowed.
The same goes for workplaces with an official ‘dress code’. A stockbroker working in a city office may be required to wear a suit, but that does not qualify as a uniform any more than a swimming instructor’s swimsuit does.
You are not permitted to claim for ordinary clothes such as jeans, drill shirts, work wear shorts or closed shoes, as these lack protective qualities designed for the risks of your work environment.
Keep the right paperwork
As with all tax deductions, you must have written evidence you spent the money if you want to claim the cost of buying or cleaning your work clothes.
Any claims over $150 require receipts, but if you claim less you may still be asked to substantiate your claim and prove how you calculated the amount. The ATO may even contact your employer to check you are actually required to wear a uniform.
It’s worth keeping in mind the ATO conducts sophisticated data analysis to spot unusual claims. If you work in an occupation that regularly claims for laundry costs – like chefs or security guards – and make a claim significantly above the average for that group, your tax return will be flagged for attention.
Calculating laundry claims
You are also permitted to claim the cost of washing, drying, ironing and dry cleaning your work clothes.
If your claim for laundry expenses is under $150 and your total claim for work related expenses is under $300, you do not need written evidence. Instead, you can claim $1 per load if the wash load is made up only of work related clothing and 50c per load if you include other laundry items.
The myDeductions tool in the ATO app is a handy way to keep records of all your work-related and general expenses.
Work-related deductions can be tricky to understand, so if you would like more information about what you can and can’t claim, call us today.
