Most Common Financial Mistakes

I received a book for Christmas on property investing. The author was encouraging readers to change from a consuming/spending habit to a saving/investing habit. The author challenged his readers to save $33 per day for a month, which amounts to $1000 (Source: From 0 to 260+ Properties in 7 Years: by Steve McKnight).

Our household budget had already be disciplined in this way over the previous few years. How did we do it? By starting with the small things and working towards the larger things.

I came across this article on the Internet today: Most Common Financial Mistakes.

The article concluded "To steer yourself away from the dangers of over spending, start by monitoring the little things that add up quickly, then move on to monitoring the big expenses."

Here are the Most Common Financial Mistakes listed in the article:

Mistake No. 1: Excessive/Frivolous Spending

Mistake No. 2: Never Ending Payments

Mistake No. 3: Living on Borrowed Money

Mistake No. 4: Buying a New Car

Mistake No. 5: Buying Too Much House

Mistake No 6: Treating Your Home Equity Like a Piggy Bank

Mistake No. 7: Living Paycheck to Paycheck

Mistake No. 8: Being Able to Make a Payment isn't the Same as Being Able to Afford it

I continuously encourage, even challenge our clients to review
their spending/consuming/ saving/investing habits and I challenge you to take that review step today. Who knows what you can achieve?

David Maynard

30% Investment allowance for small businesses

Fir information on 2009 Budget changes ==> 50% Investment Allowance

With the intention of driving more business investment during the current economic environment, the Australian federal government has launched a temporary 30% investment allowance valid for most new assets either ordered or acquired between 13 December 2008 and 30 June 2009.

For assets acquired between 1 July 2009 and 31 December 2009 the investment allowance will be 10%.

For example, a $50000 new asset acquired on 13 May 2009 would attract a one off tax deduction of $15000 in the 2008-09 income tax return, in addition to the normal depreciation allowance claimed.

The tax break will be available to small businesses (with an annual turnover of $2m or less) for purchasing eligible assets of $1,000 or more. Other businesses can receive the same deductions for eligible assets with a cost greater than $10,000 (Treasury media release No. 012).

The tax breaks will apply to new tangible assets or new expenditure on existing assets used in carrying on a business, for which a deduction is available under the uniform capital allowances provisions of Division 40 of the ITAA 1997. More specifically, the deduction will be available for depreciating assets under section 40-30 that qualify for capital allowances under Subdivision 40-B, except for the following intangibles and rights: mining, quarrying or prospecting rights and information; intellectual property; in-house software; IRUs; spectrum licences; datacasting transmitter licences, and telecommunications site access rights (Treasury media release No. 012).

A criticism of the initiative is that, although it will create a positive cash flow, it requires an outlay of funds in order to achieve that. For example, a $1000 investment will generate a tax saving of $90 (ie. 1000 x .3 x marginal tax rate of 30c). Some commentators suggest it will be of little value to small businesses.

David Maynard

Tax Bonus Payment - Am I eligible?

Tax Bonus Payment

ATO's Calculator ==> How much will I get?

Outstanding debts:
If you have an outstanding tax debt, and you are entitled to a tax bonus, the Tax Office will not offset your tax bonus against this debt. You will receive the tax bonus as a cheque or a payment into your bank account.

Eligibility:
The ATO will use your 2007-08 income tax return to determine if you are eligible for the tax bonus payment and how you will receive the payment. You are eligible to receive the payment if:

• you have lodged or will lodge your 2007-08 income tax return before 30 June 2009 or if you have been granted a deferred date by the Tax Office before Wednesday 18 February 2009 and you lodge your return by the deferred date
• your 2007-08 taxable income does not exceed $100,000
• your adjusted tax liability for 2007-08 is greater than nil, and
• you are an Australian resident for tax purposes for the 2007-08 financial year.

Persons aged under 18:
Some conditions apply for people under 18 years old.

Temporary residents:
If you were an Australian resident for tax purposes for the 2007-08 financial year, and you meet all the other eligibility criteria, you will receive the tax bonus. It does not matter whether you were here on a temporary resident visa or not.

Deceased estates:
Provided all of the eligibility criteria are met, payments will be made to the deceased estate for deceased persons.

(source ATO)

Deductions Q & A - Home office expenses

Q. I keep a room set aside in my house for a home office and would like to claim some expenses.

A. If a taxpayer carries on all or part of their employment activities from home, then some portion of the home expenses can be deducted. Where a home is a place of business, deductions can be claimed on the following items of expenditure - interest, rent, house insurance, council rates, heating and lighting, depreciation, insurance, repairs, cleaning, pest control, maintenance, decorating and telephone.

Deductions Q & A - Travel expenses

Q. I have incurred travel expenses this year. What can I claim?

A. Your travel must be relevant to your job function for you to claim a deduction for those expenses. Where this is the case you can claim the cost of transportation and incidentals. If your travel involved an overnight stay you would be able to claim for meals.

Deductions Q & A - Claiming sun protection items

Q. Can I claim a deduction for sun protection items?

A. A deduction is available for outdoor workers who buy sunscreen lotion, sunglasses and hats for use at work. The claim must be substantiated and adjusted for private use.

Tax issues for people affected by natural disarster

If you’ve been affected by flood or bushfires don’t worry about tax matters, the Tax Office will work with you to help you meet any upcoming obligations.

This also applies to people involved in fire control or support services.
The ATO realise it may be a while before you can focus on tax matters.

With this in mind, if you are experiencing any difficulties meeting your tax obligations you can contact the ATO on 13 11 42 (during business hours).

And if you get any mail from the ATO, don’t worry about it. Call the ATO when you’re ready and they will work with you to sort things out.

The Tax Office can help you by:

• fast tracking refunds for people impacted by the fires
• giving you extra time to pay debts — without interest charges
• giving you more time to meet activity statement and other lodgment obligations
• helping you reconstruct your tax records where your documents have been destroyed, and
• offering visits from field officers to help you reconcile lost records.

For more inforrmation visit the ATO here ==> Information for people affected by natural disasters.

Tax arrangements for people affected by natural disasters

If you’ve been affected by bushfires don’t worry about tax matters, the Tax Office will work with you to help you meet any upcoming obligations.


This also applies to people involved in fire control or support services.


We realise it may be a while before you can focus on tax matters.


With this in mind, if you are experiencing any difficulties meeting your tax obligations we are asking you to give us a quick call on 13 11 42 (during business hours). Choose ‘Option 3’ for crisis assistance and a local Tax Officer will help you with your query.




And if you get any mail from us, don’t worry about it. Give us a call when you’re ready and we will work with you to sort things out.

The Tax Office can help you by:

• fast tracking refunds for people impacted by the fires


• giving you extra time to pay debts — without interest charges


• giving you more time to meet activity statement and other lodgment obligations


• helping you reconstruct your tax records where your documents have been destroyed, and


• offering visits from field officers to help you reconcile lost records.

Visit the ATO web site for more information

Deductions Q & A - Claiming books & journals

Q. My job requires me to keep my knowledge up to date and I buy books and journals. Can I claim them all?

A. If technical books, trade books or journals are necessary to fulfil job function efficiently then the cost of their acquisition is deductible.

Deductions Q & A - Tools & equipment

Q. I have to buy tools/equipment for my job. What can I claim and how much?

A. You are able to claim expenditure incurred in replacing, insuring and repairing tools of trade that you use for earning your income. The amount you can claim will depend on what records you have kept.

De facto relationships and property settlements

New federal laws will commence in two months that will dramatically change how property division will be determined for de facto couples.

Separations that occur prior to the new legislation will be determined under the existing law and the new laws will only apply to separations occurring after commencement (estimated in March 2009).

There are substantial differences between the current law and the new law. Currently de facto couples cannot pursue spouse maintenance and they cannot include superannuation in a property settlement. Under the new law these two matters (and others) can be pursued.

This WILL have a dramatic impact on what is received in a property settlement.

(source Michael Lynch Family Lawyers - family Flyer 2009)

ATO to pay the $950 Tax Bonus to Australian workers

Providing the $950 tax bonus payment , announce by the government this week, passes through parliament, The Australian Taxation office will be responsible for for making the payments.

To be eligible to receive the payment taxpayers must lodge their 2008 income tax return no later than 30 June 2009 (or have an extension to lodge beyond that date issued by the ATO) and be an Australian resident.

The ATO will work out if people are eligible for the payment and how much each taxpayer is entitled to from information in their 2008 tax returns.

The ATO will either forward a cheque to the last address for service of notice held on file or to the EFT account as nominated on the last return. In some cases clients have nominated a third party to receive their tax refund. In either case, the ATO has established a special phone line where taxpayers can register their personal bank account details if it is different from the last tax return. The ATO phone number is 1300 686 636.

At this stage the ATO has announced that all changes of address and bank account details should be made by the middle of March 2009 to enable delivery of the payment by April. That may change depending on any delay in the legislation passing through parliament.

The ATO will be releasing further information and details as it becomes available.

By David Maynard

What Self deducation expenses are allowable deductions?

You may be able to claim the costs associated with educating yourself – whether you are a part-time or full-time student – if there is a direct connection between your course of study and your current job or work activities – that is, your education will maintain or improve your skills.

• For self-education expenses, this generally means that you must be employed in the field you are studying prior to commencing the study – and the study itself must be directly related to the income you are earning.

You can generally claim study-related items such as:

• textbooks
  
• course fees (including FEE-HELP but excluding HECS-HELP)
  
• stationery
  
• student union fees
  
• travel expenses to and from university or TAFE

You can claim expenses for travel between:

• your home and your place of education
• your place of education and your home
• your workplace and your place of education, and
• your place of education and your workplace.

However, only the first leg of each trip is deductible where you travelled:

• from your home to your place of education and then to your workplace, or
• from your workplace to your place of education and then to your home
  

• travel expenses under OS-HELP
  
• the decline in value of equipment used in study, such as a computer.
• Eligibility to claim self-education expenses.

You cannot claim your education costs:

• if you are studying so you can get a new job or open up a new business opportunity
  
• against income you received from Centrelink payments such as youth allowance or austudy.

(source ATO)

Claiming self education expenses

Self-education expenses are expenses that you incur when you undertake a work-related course to obtain a formal qualification from a school, college, university or other place of education.

The course must have a sufficient connection to your current employment, that is, the course:

• maintains or improves the specific skills or knowledge you require in your current employment, or
• results in, or is likely to result in, an increase in your income from your current employment.

You cannot claim a deduction for self-education expenses for a course that does not have a sufficient connection to your current employment even though:

• it might be generally related to it (see example 1), or
• it enables you to get new employment.

Example 1

Louis, a computer science student, works at the university laboratory installing computers. The course and the job are generally related, and what Louis learns might help him in his job.

However, the high level professional skills Louis acquires are well beyond the skills required for his current job and employment. Consequently there is not a sufficient connection between his job and his course, and he cannot claim a deduction for work-related expenses for his course.

(source ATO)

Paying your Higher Education Loan Program (HELP) account

Clients with a Higher Education Loan Programme (HELP) account (preciously known as HECS debt) often ask why their employer has been withholding extra amounts of tax from my pay but their HELP account balance has not reduced reduced?

Your employer will withhold additional amounts from your pay throughout the year to cover your anticipated tax liability and compulsory HELP repayment.

These amounts withheld are not directly credited to your HELP account during the income year but will be included in the PAYG Withholding Credits label on your notice of assessment.

Your final tax liability and compulsory HELP repayment are calculated at the end of the income year after you submit your income tax return. At that time, any amount your employer has deducted from your pay will be used to offset the liability that has been calculated.

Any extra amounts that you may have overpaid will be refunded to you at that time. Similarly, if you have not paid enough tax through employer withholdings you may receive a bill. The compulsory repayment shown on your notice of assessment is credited to your HELP account on the date the notice of assessment is issued.

By David Maynard

$950 paid to every eligible Australian worker

Immediate Stimulus to Support Jobs and Economic Growth (source Prime Minister of Australia media release - see this link for more details).

The $42 billion nation building and jobs plan announced by the government yesterday has five components. This is the fith component and the one many Australians are interested in. The following is an excerpt from the Prime Minister's media release.

"Targeted bonuses to low and middle income households will provide an immediate stimulus to the economy and support Australian jobs. In conjunction with the payments delivered as part of the $10.4 billion Economic Security Strategy announced in October, these measures have been designed to assist those groups most affected by the flow-on effects of the global recession.

The five one off cash bonuses included in today’s plan are the:

• Tax Bonus for Working Australians of up to $950 paid to every eligible Australian worker earning $100,000 or less. This will support up to 8.7 million individuals.
• $950 Single Income Family Bonus to support 1.5 million families with one main income earner.
• $950 Farmers' Hardship Bonus paid to around 21,500 drought affected farmers and farm dependent small business owners receiving exceptional circumstances related income support.
• $950 per child Back to School Bonus to support 2.8 million children from low- and middle-income families.
• $950 Training and Learning Bonus paid to students and people outside of the workforce returning to study to help with the costs of education and training.
  

Reserve Bank slashes interest rates by another 1%

The Reserve Bank has slashed interest rates by 100 basis points to 3.25 per cent. The new rate is the lowest since February 1964.

Economists say by the end of September 2009 the cash rate could hit a record low of 2 per cent.

By David Maynard

$950 bonus payment to 8.7 million workers

The Australian government announced a $42 billion package today to kickstart the economy.

An immediate injection of $12.7 billion in one-off bonus payments of $950 each for low- and middle-income households and individuals through five bonuses to be paid in the next few weeks.

It means 8.7 million workers earning $100,000 or less will receive a lump sum payment of up to $950 each from April.

About 1.5 million single-income families will also receive the payment, provided they receive Family Tax Benefit Part B, in the fortnight beginning March 11. (source News.com http://www.news.com.au/business/story/0,27753,25001488-462,00.html).

We will release more information as it becomes available.

By David Maynard