Blog

CGT exemption on inherited homes

9 December 2019

Inheriting a home or a legal interest in one could be the largest windfall gain that many Australians ever experience. From a tax law perspective, when someone dies a capital gain or loss does not apply when a property passes:

  •  to the deceased person’s beneficiary
  • to the deceased person’s executor or other legal personal representative (LPR), or
  • from the deceased’s LPR to a beneficiary.

While generally no CGT applies when assets are distributed to beneficiaries, there may be CGT implications when the executor or beneficiary sells the inherited asset to a third party.

Selling an inherited property
There are different factors that influence whether CGT will apply, including whether the asset was a pre-CGT asset or not. Assets acquired before 20 September 1985 (when CGT was introduced) are considered pre-CGT assets.

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Fictions (and facts) about work expense deductions

12 November 2019

There can be varied sources for some of the myths about tax deductions —pub-talk, BBQ-banter, hairdresser-homilies, what-your-taxi-driver-just-heard and many others. We sort out fact from fiction.

This year’s tax time saw media reports about various outlandish tax claims — for example the ATO being faced with claims for dental expenses, gambling losses, Lego sets, sunscreen (and an umbrella) for cigarette breaks, and even the cost of a wedding reception (all rejected, by the way).

How certain myths are started about what can or can’t be claimed on tax is anyone’s guess, but it is these snippets of misinformation about allowable tax deductions that can lead unaware taxpayers to make incorrect claims — and get the taxman’s attention.

Here are some of the most common:

Fiction: Everyone can automatically claim $150 for clothing and laundry, 5,000km under the cents per kilometre method for car expenses, or $300 for work-related expenses, even if they didn’t spend the money.

Fact: There is no such thing as an “automatic” or “standard deduction”. Substantiation exceptions provide relief from the need to keep receipts in certain circumstances. While you don’t need receipts for claims under $300 for work-related expenses, $150 for laundry expenses (note: this is for laundry expenses only and does not include clothing expenses) or if you are claiming 5,000km or less for car expenses under the cents per kilometre method, you still must have spent the money, it must be related to earning your income, and you must be able to explain how you calculated your claim.

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Tax and the kids’ savings

28 October 2019

If a child is under the age of 18, and they earn income on their savings account, remember that the ATO considers that the person who “owns” the interest depends on who uses the funds of that account (no matter what type of account it is or the name of the account holder).

You need to consider:

  • who provides the money, such as the initial and ongoing deposits into the account, and
  • who decides how the money is spent, regardless of who it is spent on.

In other words, if you provide the money and spend it as you like, you must include the interest in your own tax return.

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Tax when you’re headed overseas

15 October 2019

Most people’s “to-do” list when they are planning a trip overseas will likely include items such as travel insurance, phone chargers or taking photos of their passport — but probably the last thing on anyone’s minds will be their likely tax situation before, during or after that trip-of-a-lifetime.

However a few simple considerations, taken in the context of your personal circumstances, may end up making quite a difference to your final fiscal outcome.

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Business trading structures: What’s best for your business?

11 September 2019

When you have plans for starting a new business, one of the central decisions is which business trading structure will work best for your venture.

The general problem however can be that there are both pros and cons with the main options available, so considerations need to be given with regard to the overall situation as well as the specific conditions presented with any business venture. To explain the options, we can look at one example that has typical conditions found in many businesses.

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Keeping busy — but is it just a hobby, or are you in business?

28 August 2019

It is important to understand the differences between a hobby and a business for tax, insurance and legal purposes among other things. For one thing, there will be certain tax and other obligations that start once you are in business.

However it’s a myth that there is a dollar threshold to be in a business (some people can have very expensive hobbies). What matters is whether, as a whole, your activity is “commercial”, with an aim to make a profit. Once you are in business, there are dollar thresholds that can affect what you can claim for tax purposes.

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What you need to know about trust distribution resolutions

17 August 2019

An essential starting point for consideration of trust income and how that income is to be distributed is to look at the trust deed. This very central document sets out the rules and expectations for the governance and operation of the trust and the powers that can be exercised by the trustee.

Although it can be commonly assumed that the trust deeds of similar types of trusts (such as family trusts, fixed trusts, public unit trusts and so on) are generally alike, the reality is that each deed is unique and can have important differences.

There is a certain level of external regulation of trustees, in that each state and territory has its own trustees’ act, however in a practical sense such legislation generally tends to apply in circumstances where a trust deed is silent on specific areas that are relevant to operational and governance matters. And unlike companies, which operate under the regulations of the Corporations Act 2001, there are no “replaceable rules” available (whereby a company can choose to not spell everything out in a constitution and use the act’s replaceable rules instead).

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Event-based reporting mistakes lead to more SMSF audits

4 August 2019

In the year since event-based reporting (EBR) started for SMSFs (from 1 July 2018) the ATO says an unprecedented number of transfer balance cap reports have required re-reporting.

The transfer balance account report (TBAR) is used to report certain events and is separate from the SMSF annual return. The TBAR enables the ATO to record and track an individual’s balance for both their transfer balance cap and total superannuation balance.

The ATO says the regulations in place do not provide it with a discretion for “special circumstances” regarding contraventions of the transfer balance cap, and that it is particularly important for all SMSF trustees and members to self-monitor and ensure that no member exceeds the cap.

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Carrying forward concessional super contributions

21 July 2019

The income year of 2019-20 has just ticked over, which is also the first year in which an individual is able to make additional catch-up contributions to super through the application of unused concessional (before tax) contributions.

These are “unused” if the fund member made less than the legislated cap on such contributions, which was reduced to $25,000 per year from 1 July 2017.

The rules that allow for a catch-up started to take affect one year later. From 1 July 2018, if a fund member had a total super balance of less than $500,000 on the previous 30 June, and they make or receive concessional contributions (CCs) of less than the “basic cap” of $25,000 a year, they have been able to accrue unused amounts for use in subsequent financial years.

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