A transition to retirement income stream (TTRIS) is a pension income stream you can withdraw from your superannuation fund once you reach your preservation age. Your preservation age depends on when you were born. Anyone born after 1 July 1964 must wait until they are over 60 before they can access their superannuation.
If you have reached your preservation age you can commence a TTRIS pension, which means you can access up to 10% of your superannuation balance each year. The amount you can access for the year is calculated on your balance at 1 July.
For example, Ben has a self-managed superannuation fund (SMSF) called BigBen Superannuation Fund. At 1 July 2017, he had a balance of $650,000. As Ben was born on 20 March 1961, he can commence a TTRIS pension when he reaches age 56 (which he did on 20 March 2017).
Ben decides to commence a TTRIS pension on 1 July 2017. He can therefore take up to $65,000 per year from the fund (adjusted each year depending on the fund balance). He can take this as one payment of $65,000 or regular instalments; such as $2,500 per fortnight.
The $65,000 income stream Ben takes needs to be included in his 2018 income tax return, however this income is concessional tax. Only the taxable component of the $65,000 is taxed, therefore if he has made non-concessional contributions part of his income stream will be tax free. The taxable component is taxed at Ben’s marginal tax rate, however he receives a 15% tax offset to reduce the total amount of tax that he needs to pay.
A TTRIS pension can be a good way to cut back on the number of hours you need to work while keeping your income levels the same. See our office if you would like more information on how TTRIS pensions work.
Personal Services Income (PSI) is income you earn predominantly through the use of your skills and efforts as an individual. The PSI rules have been enacted to stop people who earn PSI from paying wages to their spouses or family members to reduce their overall tax bill. For example - John earns $130,000 running an IT service business through a company. As the money is derived mainly from John’s individual skills, the income is classified as PSI. This means John cannot pay his wife a salary for bookkeeping and other duties and the income is declared on John’s personal tax return. The PSI rules can be avoided however if one of the following tests are passed.
The main test is called the Results Test and if you pass this test, the PSI rules do not apply. To pass this test you must meet the following criteria:
If you do not pass the results test, you may still be able to exclude your income from the PSI rules if you do not receive more than 80% of your income from the one client and you pass one of the following three tests.
Unrelated Client Test
You pass this test if you work for two or more unrelated clients, and you offer your services to the public.
You pass this test if your business employs other people as subcontractors or employees.
Business Premises Test
You pass this test if your business premises is not your home or your client’s premises and is used exclusively for your business.
If you do not pass the above tests as you have unusual circumstances, you can apply for a Personal Services Business determination.
Please contact our office if you are concerned you may be receiving PSI and would like use to review your circumstances.
The 2017 Budget, delivered on 9 May 2017, has seen two major changes that will impact current and future rental property operators.
The first change, which will impact existing owners of rental properties, is the removal of the tax deductibility of travel expenses effective from 1 July 2017. This means if you travel to inspect or maintain your property you can no longer claim this on your tax return. The 2017 tax return will be the last time you will be able to claim these expenses.
The second and more substantial change, which will only impact new rental properties purchased from 9 May 2017, is the removal of the ability to depreciate plant and equipment (such as dishwashers, ovens, air conditioners, etc) that come with the property. Prior to the budget, when you purchased a property you could obtain a tax depreciation report to increase the depreciation you could claim on the property. However, from 9 May 2017, you can only claim this depreciation on plant and equipment you purchase once you own the property.
Although the wording of the Budget papers is vague, it would appear if you build a new house or purchase a unit off the plan, you will still be able to claim the full amount of depreciation. This point will be clarified once Parliament releases the draft legislation.
If you would like to know how this will affect your individual circumstances, please contact our office.
The ATO has released a new app, available for both Android and iOS, which has a few tools that may help you with your record keeping. Perhaps the best feature in the new app is the ability to take photos of your receipts and store them until tax time. When you are ready to complete your tax return you can use the receipts or email them straight to us from the app. Other helpful features of the app include a PAYG withholding calculator, an ABN lookup tool, small business benchmarks and a list of key tax deadlines. To find the app, just search for ATO in the Google Play or Apple App Store.
Xero have recently launched a new feature which makes their software more powerful. It’s called Live Contacts and as the name suggests this feature allows your contact information to be linked to an online database. This can be a big time saver as the software can prefill details such as addresses, ABNs, and phone numbers. This information is made available by Equifax (formally Veda), who are one of the largest credit rating agencies in the United States. The other major benefit is Equifax provides a credit rating for the contacts you add – meaning you can now check the credit worthiness of your current and prospective customers. This may save you from doing work or selling to businesses who may not pay you. Watch the following short video for more info.
A question we are regularly asked is what is the best legal structure to use for holding a property portfolio. Although the best structure for you will depend on your individual circumstances, a great structure to consider would be a unit trust with a corporate trustee.
As the rental properties in the unit trust will most likely be geared, it is probable that in the first few years the expenses will be higher than the income, thus creating a tax loss. Any losses the unit trust makes are carried forward and offset against future profits or capital gains the trust makes.
Usually the downside of holding property in trusts is that the trustee must pay land tax on the unimproved land value of each property the trust holds at a rate of 1.6%. However, our trust deed provider is able to set up a trust deed with special provisions that allow yourself as an individual unit holder to be assessed for land tax personally instead of the trust. This means you have the benefit of the land tax threshold so you will not pay land tax until the unimproved value of your land total land holdings is above $482,000.
Finally there is asset protection; if someone has an accident on your property and sues you, your other assets may be at risk. You should always obtain an appropriate insurance policy to cover yourself for this type of risk. If you hold the property in a unit trust with a corporate trustee and get sued, there is another layer of protection as it would be the corporate trustee that will be sued, not yourself personally.
If you would like to know whether a unit trust would be a suitable structure for your property portfolio, please contact us.
The Office of State Revenue (OSR) currently has a grant available to small businesses who hire new employees, this is called the Small Business Grant. The value of the grant is $2,000 per new full time employee. The grant is also available to part time or casual employees; however the value of the grant is pro-rated based on the number of hours they work.
To be eligible for the grant, you must be a small business that is not currently liable to payroll tax. The employee must be employed in a new position; you cannot replace an existing employee and receive the grant.
The grant is available to new employees who commence work during the period 1 July 2015 to 1 July 2019 and is paid to the employer on the twelve months after their commencement date.
You can apply for the grant online through the OSR website by clicking the following link or by contacting our office for help:
One of the costs of engaging employees is workers compensation insurance, which covers you if one of your employees injures themselves whilst working for you. If you have a registered apprentice in NSW, their wages are exempt, which means you do not need to pay workers compensation on their wages. In order to claim this exemption on your workers compensation policy, make sure you include the total gross wages (including super) of your apprentices on the apprentices section of the Declaration of Actual Wages form.
Luxury car tax is a tax payable on new cars with a GST inclusive value above the luxury car tax threshold, which is currently $64,132 for non-fuel efficient vehicles and $75,526 for fuel efficient vehicles. A New Tax System (Luxury Car Tax) Act 1999 defines a car as a motor vehicle designed to carry a load of less than two tonnes and fewer than nine passengers.
Section 25.1(2)(a) of the A New Tax System (Luxury Car Tax) Act 1991 allows an exemption if the vehicle is “a commercial vehicle that is not designed for the principal purpose of carrying passengers”. Most trucks and utes are covered by this exemption as their principal purpose is not to carry passengers but to carry goods or equipment.
Vehicles that are designed to carry both goods and passengers, such as dual cabs, will be liable to luxury car tax if the maximum passenger weight is more than the maximum weight the tray can hold. To calculate the maximum passenger weight, multiply the number of seats in the vehicle by 68kg. If this is more than 50% of the vehicle’s quoted payload, luxury car tax will apply.
There is a exception to this rule in the case of the Toyota Landcruiser 70 series. The ATO has published a special Class Ruling CR2012/81 stating that all 70 series Landcruisers are exempt from luxury car tax due to the shape of their body and the widespread industry usage of these vehicles.
Novated leases are arrangements whereby an employer leases a vehicle from a finance company, and then passes the lease obligations onto an employee or their associate.
When your employer enters the lease arrangement, they are able to claim GST on the lease payments, unless they are not registered for GST or their business income is input taxed.
The employer is entitled to income tax deductions for the lease payments less any claimable GST. The employee is not entitled to any tax deductions.
Fringe Benefits Tax
If the employee has private use of the vehicle, the employer will need to pay fringe benefits tax calculated using either the operating cost method or the statutory formula method. Please contact our office if you would like more information about how to calculate the FBT liability on a motor vehicle. Once the fringe benefits tax is calculated, the employee can reimburse some or all the fringe benefit to reduce the employer’s FBT liability. This can be done by paying an amount each week to the employer or, more commonly, as a reduction of their after-tax wage.
Confused? Of course you are! We are talking about the interaction of three different taxes, so lets run through an example:
Tom is an employee of Cactus World Pty Ltd, a retailer of designer cactuses. Tom enters an arrangement with his employer Cactus World Pty Ltd and a finance company to lease a 2012 Mitsubishi Lancer from a used car dealer. The car will be used by Tom for private travel only. The figures in this example are as follows:
Under the lease, Cactus World Pty Ltd makes payments of $9,960. Cactus World Pty Ltd can claim the GST on the lease payments, insurance & CTP, fuel and repairs for the year totalling $860. They are also entitled a tax deduction of $9,100, resulting in an income tax saving of $2,594. Therefore, they are currently receiving tax benefits of $3,454. This brings their out of pocket down to $6,506.
We then must work out the FBT liability. Using the statutory formula method, this is calculated as $3,470. The FBT liability can be reduced to nil if Tom makes post tax contributions of $3,300, which is known as the employee fringe benefit reimbursement.
Tom’s gross salary after the arrangement is reduced by the employers out of pocket amount, which brings his gross salary down from $52,000 per year to $45,494. His tax is now $7,228 for the year. The employer deducts the employee fringe benefit reimbursement amount of $3,300, which leaves Tom with net income of $34,966. His net weekly wage is now $672, down from $817 per week before the vehicle. Therefore, his new vehicle including running costs is effectively costing Tom $145 per week or $7,540 per year. A total saving of $2,420.