Individual Tax Update - January 2019
1. ‘Big Ticket’ Deductions
2. Rental Property Deductions Reminder
3. Foreign Resident Capital Gains Withholding (FRCGW) – Not Just for Foreign Residents
4. Single Touch Payroll and MyGov Income Statements
5. Expanded Eligibility for Claiming Spouse Superannuation Contributions
6. Private Health Insurance Rebate update
7. HELP repayment threshold for 2018/19
‘Big Ticket’ Deductions
Each year, when completing client income tax returns, we note the following (usually) large dollar value items that create large tax deductions – most require one or more cash payments during the year. Correct paperwork is essential to ensure that our expenses can be claimed as a tax deduction.
1. Income protection premiums – these are premiums that you pay personally, and your insurer will provide a letter at the end of the year confirming the amount of your payments that qualify as an income tax deduction (please email a copy of this letter when received).
You are not able to claim a deduction for income protection premiums paid from your superannuation fund;
2. Personal concessional (tax deductible) superannuation contributions – effective 1 July 2017, individuals have been able to claim an income tax deduction for personal, concessional superannuation contributions (after tax contributions), even where they have an employer contributing on their behalf. There are two important things to remember – firstly, the total of your employer and personal concessional contributions can’t exceed $25,000 within the financial year, and secondly, you need to notify your superannuation fund that you intend to claim an income tax deduction for your personal contributions, and receive an acknowledgement from the fund, before lodging your return (so please ensure your advice to the fund is completed promptly after 30 June);
3. Donations – while money is the simplest way to donate to a charity, it is not the only thing that can be donated – you may be able to donate assets to a charity (for example, listed shares) and receive a tax deduction for the value of the item donated. ‘Property’ donations, which include all types of goods, may attract a tax deduction where the value exceeds $5,000, or if you purchased the item within 12 months of donating it to the charity, the value can be less. If you are intending to make a ‘property’ or shares donation, please contact us and we can provide detailed information about the requirements to be met (specifically the valuation requirements) for a deduction to be claimed;
4. Car Expenses – Where an individual can substantiate 5000 klms of work travel, they are able to claim a deduction in 2018/19 of $3,350. Where a log book is kept for 12 weeks to substantiate work use, and receipts for car expenses are available, the claim can be much greater than this, especially where the cost of the car can be depreciated. Car expenses are regularly scrutinized by the Taxation Office, so a high level of record keeping is required;
5. Study Course Fees – for work related courses with a direct connection to your income earning activities. Where course fees are paid up front, or funded via Fee-HELP, a deduction is available for the cost of the course fee in the year incurred. In many cases, the first $250 of the fees may not be deductible, but the purchase of a computer costing more than this amount, or child care fees to enable study to occur, may be able to offset the $250 non deductible portion. Other costs such as study use of home internet, stationery, travel to place of study, etc can all be included in your study claim.
Rental Property Deductions
Just a reminder, for most residential rental property owners, travel to and from their property (for example, to undertake repairs or to inspect the property) ceased to be a deduction from 30 June 2017. The unclaimed travel deductions cannot be included in the cost base of the asset on eventual sale. Where you operate a residential property business, this deduction continues to be available. The deduction is also available where you own commercial or industrial property.
Rental Property Depreciation
In a rental property context, second hand assets acquired after 7.30pm on 9 May 2017 are unable to be depreciated, unless acquired under a contract prior to that date. This also applies to assets purchased before 1 July 2017, but not used to generate rental income in the 2017 financial year. An example of this is where your home is purchased before 1 July 2017, and later converted to a rental property – depreciation will not be able to be claimed on the assets in the home.
Separate rules apply to the capital allowance concessions for these properties.
Where investors purchase newly constructed assets, they will continue to qualify for both depreciation and capital allowance concessions.
Foreign Resident Capital Gains Withholding (FRCGW) – Many Property Sales will be Impacted
For those who have sold their home or other land/buildings since 1 July 2016, you may have already been impacted by this new system, but as the threshold property value until 30 June 2017 was $2m, the impact was limited.
From 1 July 2017, where a property is sold with a sale price of $750,000 or more, the purchaser is required to withhold 12.5% of the sale price and remit it to the Taxation Office, unless the vendor provides a clearance certificate (obtained from the ATO), confirming they are not a foreign resident, before the due date for settlement.
This withholding obligation was designed to assist foreign residents with meeting their capital gains tax obligations on disposals of Australian property, but has been applied to all property sales, regardless of the nationality of the vendor, where the sale price exceeds $750,000. Most solicitors are now well aware of these obligations, but settlement delays may still occur where a certificate has not been obtained.
The main point to remember is that this relates to all property sales, not just sales by foreign residents, so we recommend that, as soon as your sale contract has become unconditional, you arrange to apply for your clearance certificate.
Single Touch Payroll and MyGov Income Statements
For the 2019 financial year, the introduction of Single Touch Payroll (STP) means real time reporting of your wages and superannuation to the Taxation office, each time you receive a pay. In 2018/19, this applied to all employers with 20 or more employees, with all smaller employers using STP from 1 July 2019.
From the ATO website:
When an employer reports through STP their employees will see their year-to-date tax and super information in myGov. This information will be called an Income statement and will be updated each time their employer runs their payroll.
At the end of the year, payment summary information will be available on MyGov from 15 August 2019.
Expanded Eligibility for Claiming Spouse Superannuation Contributions
From 1 July 2017, an increase in the spouse income threshold to $37,000 has meant that more individuals are entitled to an income tax deduction for superannuation contributions made on behalf of their spouse – a tax offset of $540 applies if all of the following apply (from the ATO website):
- the total of their spouse's assessable income, total reportable fringe benefits amounts and reportable employer super contributions is not more than $37,000 and the contributions were not deductible to the taxpayer
- the contributions were made to a complying super fund for the income year in which the taxpayer made the contribution
- both the taxpayer and their spouse were Australian residents when the contributions were made
- when making the contributions the taxpayer and their spouse were not living separately and apart on a permanent basis
- their spouse had not exceeded their non-concessional contributions cap for the relevant year or had a total superannuation balance equal to or exceeding the transfer balance cap immediately before the start of the financial year in which the contribution was made.
There is a part claim for the offset where your spouse’s income is between $37,000 and $40,000.
Private Health Insurance Rebate - Inconme tiers 2019 to 2012 FInancial Years
‘Adjusted Taxation Income’ is the income measure for both the Private Health Insurance rebate and HELP repayment requirements. From the ATO website:
Generally, your ATI is the sum of the following amounts:
- taxable income (your assessable income minus deductions)
- adjusted fringe benefits
- tax-free government pensions or benefits (includes disability pensions, carer payments and defence pensions)
- target foreign income (includes any income earned from overseas that is not already included in your taxable income or received in the form of a fringe benefit)
- reportable super contributions (includes both reportable employer super contributions and deductible personal super contributions)
- total net investment loss (includes both net financial investment loss and net rental property loss)
- any child support you paid
Where your income has exceeded the rebate threshold that you are currently claiming, you will be required to repay the excess rebate received when lodging your income tax return. Please note, this will be the case even where clients income is below the tax free threshold and no other tax is payable. The other alternative is to contact your private health insurer and ask them to reduce or remove the rebate from your premium payments, increasing the amount payable.
HELP Repayment Thresholds 2018/19
Far below please see the 2018/19 HELP repayment thresholds. For those with a HELP debt, but who are currently non residents of Australia, the link below will assist in you calculating your HELP repayment requirement, based on your overseas income.
From the ATO website: