What Medical Expenses Eligible for Medical Expenses Tax Offset?

(last updated 23/04/2014) 

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The medical expenses must be for:

  • you
  • your spouse – married or de facto – regardless of their income
  • your children who were aged under 21 years, including adopted and stepchildren, regardless of their income
  • any other child aged under 21 years – not a student – whom you maintained and whose separate net income (SNI) was less than $1,786 for the first child and lessthan $1,410 for the second child and any subsequentchildren
  • a student aged under 25 years whom you maintained and whose SNI was less than $1,786
  • child-housekeeper, but only if you can claim a taxoffset for them at item T1 on your tax return, or
  • an invalid relative, parent or spouse’s parent, but onlyif you can claim a dependant tax offset for Parent, Spouse's parent or invalid relative.
You and your dependants must be Australian residents for tax purposes, but you can claim medical expenses paid while travelling overseas. You can also include the medical expenses of your spouse and dependent children if they were waiting to migrate to Australia in 2008–09 and if you were taking the steps necessary for their migration in a timely manner.

Medical expenses which qualify for the tax offset also include payments:

  • to dentists, orthodontists or registered dental mechanics
  • to opticians or optometrists, including for the cost ofprescription spectacles or contact lenses
  • to a carer who looks after a person who is blind orpermanently confined to a bed or wheelchair
  • for therapeutic treatment under the direction of a doctor
  • for medical aids prescribed by a doctor
  • for artificial limbs or eyes and hearing aids
  • for maintaining a properly trained dog for guiding orassisting people with a disability (but not for socialtherapy)
  • for laser eye surgery, and
  • for treatment under an in-vitro fertilisation program.

Expenses which do not qualify for the tax offset include payments made for:

  • cosmetic operations for which a Medicare benefit isnot payable
  • dental services or treatments that are solely cosmetic
  • therapeutic treatment where the patient is notformally referred by a doctor – a mere suggestion or recommendation by a doctor to the patient is notenough for the treatment to qualify; the patient mustbe referred to a particular person for specific treatment
  • chemist-type items – such as tablets for pain relief – purchased in retail outlets or health food stores
  • inoculations for overseas travel
  • non-prescribed vitamins or health foods
  • travel or accommodation expenses associated withmedical treatment
  • contributions to a private health insurer
  • purchases from a chemist that are not related to an illness or operation
  • life insurance medical examinations
  • ambulance charges and subscriptions, and
  • funeral expenses.

E-tax Return

See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
Web Based Tax Return App:

A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

Tax Office Audit of Rental Properties 2009

Last year more than 1.4 million people claimed over $25 billion in rental deductions in their tax return. Over 200,000 of these people were claiming deductions for the first time.With so many people claiming deductions the Tax Office is continuing its focus in this area to ensure they get the claim right.

This year the Tax Office will write to around 110,000 people who have purchased rental properties in the past 12 months with advice on claiming rental property deductions.

We have received notification from the ATO regarding forwarding these letter to clients with a draft letter. Te focus is on interest deductions, asking taxpayers to check their records. No other follow-ups are expected from the ATO relating to these letters.

Claiming Union & Professional Assoc. Fees

You can see what your tax refund will be using this tool: Free Online Income Tax Calculator


See also ==> Deductions Q & A's

You can claim a deduction for these fees. If the amount you paid is shown on your group certificate, you can use it to prove your claim. You can claim a deduction for a levy paid in certain circumstances—for example, to protect the interests of members and their jobs.

Claiming Low Value Pool Depreciation

(last updated 26/03/2014)

For a quick tax refund calculation use our online calculator - Online Tax Refund Calculator.

Work related tools and equipment costing between $300 and $1000 can be allocated to a Low Value Pool depreciated under. Tools and equipment that have declined in value from other depreciation methods can also be allocated to the Low Value Pool. See this post for a checklist on eTax and Allowable Deductions.

Working out Depreciation

You work out your deduction for the decline in value of depreciating assets in a low-value pool using a diminishing value rate of 37.5%.

For the income year in which you first allocate one or more low-cost assets to a low-value pool, you work out your deduction at a rate of 18.75%, or half the normal pool rate. Halving the rate recognises that assets may be allocated to the pool throughout the income year and eliminates the need for separate calculations for each asset based on the date it is allocated to the pool.
Once you choose to allocate a low-cost asset to a low-value pool, all low-cost assets you start to hold in that and any subsequent income year must also be allocated to the pool.

Why use Low Value Pool

Low Value Pool method of depreciating tools and equipment will almost always result in a larger deduction for two reasons:
The Low Value Pool rate is higher than most depreciation rates - even in the first year;



  • Under other depreciation methods the claim amount is based on an apportionment for the number of days through the year it was held, often resulting in a relatively low small deduction.

    Assets that can not be allocated to a Low Value Pool

    You cannot allocate the following depreciating assets to a low-value pool:
    • assets for which you have previously claimed deductions worked out using the prime cost method
    • assets that cost $300 or less for which you can claim an immediate deduction
    • assets for which you deduct amounts under the simplified depreciation rules for small business entities (see note below), and
    • horticultural plants.

  • For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your 2014 tax refund estimate and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    Claiming Tools & Equipment


    See this post for edtails on and checklist for claiming Low Value Pool.

    Claim in full

    Tools and equipment bought between 1 July 1991 and 11.45 a.m. on 21 September 1999 can be depreciated at a rate of 100 per cent—that is, you can claim an immediate deduction—if the cost of the item is $300 or less or its effective life is less than 3 years. You can see what your tax refund will be using this tool: Free Online Income Tax Calculator


    Depreciation 

    You can claim a deduction for the work related part of the depreciation on the cost of the tools and equipment you use for work. How you calculate your deduction may vary depending on when you bought an item and how much it cost.
    Tools and equipment bought between 11.45 a.m. on 21 September 1999 and 30 June 2000 can also be depreciated at the rate of 100 per cent if the item cost $300 or less. Every other item bought during this period must be depreciated over its effective life, even if it has an effective life of less than 3 years.

    Repairs 

    You can claim a deduction for the cost of repairing tools and equipment to the extent that you use them for work.

    For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your 2014 tax refund estimate and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started!

    Claiming Seminars, Conferences & Training

    See also ==> Deductions Q & A's

    You can claim a deduction for the cost of attending seminars, conferences and training courses that are sufficiently connected to your work activities at the time the expenses were incurred, provided your employer or any other person did not reimburse the costs. You can see what your tax refund will be using this tool: Free Online Income Tax Calculator

    (Source ATO)

    Claiming for car Wash

    (last updated 27/03/2014)

    Related Posts:

    Claiming for Car Wash

    You can claim a deduction for car washing if you use your vehicle to earn your income and you use the logbook method or one-third of actual expenses method of claiming your car expenses as follows. You claim the cost of car wash by including it in the calculation your claim.

    As stated you can only claim the expenses when one of the following methods is used to claim car expenses:

    When Can Car Expenses be Claimed?

    Transport or car expenses include public transport fares and the running costs associated with using motor vehicles, motor cycles, bicycles, etc., for work-related travel. Following is a brief checklist of when car expenses can be claimed as an allowable deduction:
    • Travel between home and work
    • Travel between home and work - transporting bulky equipment
    • Travel between home and work where home is a base of operations and work is commenced at hom
    • Travel between home and shifting places of wor
    • Travel between two separate work places if there are two separate employers involve
    • Travel from the normal work place to an alternate work place while still on duty and back to the normal work place or directly home
    • Travel from home to an alternate work place for work-related purposes and then to the normal work place or directly home
    • Travel between two places of employment or between a place of employment and a place of business
    • Travel in connection with self education
    For a details on when car expenses can be claimed see this post:

    Reimbursements

    If a payment is received from an employer for an estimated expense, the amount received by the employee is considered to be an allowance (not a reimbursement) and is fully assessable to the employee. See this post for details and a checklist of eTax return and Assessable Income.

    See this post for details on Tax deductions, Employer Reimbursements and Allowances.

    E-tax Return

    See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
    For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started!

    Car Expenses that are Non Deductible


    (last updated 27/03/2014)

    For a checklist of allowable car deductions see this post Car Expenses you can Claim


    Travel between home and work
    You cannot claim a deduction for the cost of normal trips using your car to travel between your home and your workplace. It is a private expense even if you do small tasks on your way to or from work—forexample, picking up the office mail.

    You cannot claim a deduction for the cost of home to work travel just because you work shift work, are 'on call' or there is no public transport available.
    Motor vehicle provided by your employer or any other person
    You cannot claim a deduction for car expenses if your employer or any other person provides a car for you and you do not pay for any of the running costs.

    You cannot claim a deduction for any expenses you incur for the direct operation of a car that your employer provides and that you or your relatives use privately at any time, even if the expenses are work related. Such expenses form part of the valuation of the car for fringe benefits tax purposes. However, you may be able to claim expenses such as parking and bridge fees that are linked to the car but are not involved in its direct operation.

    If you receive a car allowance from your employer it will need to be shown as assessable income.  See this post for a checklist of eTax Return and Assessable income.

    For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    The ATO's E-tax 2014 download requires installation of government software. Eztax.com.au offers a fast & easy online service and no software downloads, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your 2014 tax refund estimate and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 



    Claiming Work Clothes, Uniforms & Overalls

    (last updated 23/04/2014)

    Related Posts:


    Compulsory uniforms

    A compulsory uniform is a set of clothing that, worn together, identifies you as an employee of an organisation having a strictly enforced policy that makes it compulsory for you to wear the uniform while at work. You can claim a deduction for the cost of buying, renting, repairing and cleaning a compulsory uniform.

    You may be able to claim a deduction for shoes, socks and stockings where they are an essential part of a distinctive compulsory uniform, the characteristics of which—colour, style, type—are specified in your employer's uniform policy. The uniform policy must be consistently enforced. 

    See this post for more details on claiming Compulsory Uniforms.

    Single items of compulsory clothing

    You may be able to claim for a single item of distinctive clothing, such as a jumper, where it is compulsory for you to wear it at work. Generally, clothing is distinctive where it has the employer's logo permanently attached and the clothing is not available to the general public. 

    Non-compulsory uniform or wardrobe

    Jf your employer encourages you to wear a uniform or corporate wardrobe but it is not compulsory for you to wear one, you can claim a deduction for the cost of the clothing only if the design of the clothing  has been entered on the Register of Approved Occupational Clothing of the TCFDA. Details of registered corporate wardrobes can be obtained either from your employer or from the Department of Industry directly on 03 9268 7944 - NOTE, there is no longer a public register available on the web.

    If you wear a non-compulsory uniform or wardrobe, you cannot claim for stockings, short socks or shoes as these items cannot be registered as part of a non-compulsory uniform. Your employer can tell you if your non-compulsory uniform or wardrobe is registered. If your employer requires you to wear a distinctive uniform or wardrobe but does not consistently enforce the wearing of the uniform, the design of the uniform must be registered before you can claim a deduction. 

    See this post for more details on claiming Non-compulsory Uniforms.

    Occupation specific clothing

    You can claim a deduction for the cost of occupation specific clothing. This is clothing that is specific to your occupation, is not everyday in nature and would allow the public to easily recognise your occupation—for example, a barrister's robes.

    Protective Clothing

    You can claim a deduction for the cost of buying, hiring, replacing or maintaining protective clothing. This is clothing that protects you from injury at work or protects your everyday clothing from damage. 

    Laundry and dry cleaning

    If you can claim a deduction for your eligible work clothes as described above, you can also claim a deduction for the cost of cleaning them. You can claim laundry expenses for washing, drying or ironing such work clothes, including laundromat expenses. If your claim for laundry expenses is $150 or less, you do not need written evidence—you may use a reasonable basis to work out your claim.
    If you claim a deduction for laundry expenses that is more than $150 and your total claim for work expenses—other than car, meal allowance, award transport allowance and travel allowance expenses—exceeds $300, you need written evidence for the total claim. You can claim the cost of dry cleaning eligible work clothes as described above, if you have kept written evidence to substantiate your claim. You do not need written evidence if your total claim for work expenses is $300 or less. 

    Uniform Allowances Received

    If you receive an allowance for clothing, uniforms and or laundry allowance it should be shown in the Allowance Box on the Annual PAYG Payment Summary. See this post for a checklist of eTax and Assessable Income.

    E-tax Return

    See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
    For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    Claiming Computers and Software

    (last updated 1/04/2014)

    You can claim a deduction for the work related proportion of depreciation on the cost of computers. If you use your computer for private purposes you must apportion your depreciation amount between work related and private use.

    You can also claim a deduction for the work related proportion of the cost of repairs to your computer and interest on money borrowed to finance its cost.

    Costs incurred in acquiring, developing or commissioning computer software are depreciable and deductible over 2 ½ years at the rate of 40 per cent per year for the part of the year you owned the software. However, you may be able to immediately claim such costs in full where you incurred them:
    • before 1 January 2000 and for the principal purpose of ensuring that an existing computer system is year 2000 compliant or
    • in acquiring one copy of a particular unit of software during the current year, and its cost was less than $300 or
    • in acquiring more than one copy of a particular unit of software during the current year, and the total cost of all the copies you acquired was less than $300.
    In all cases, you must apportion your claim between work related and private use.

    See this post for details and a checklist of Low Value Pool Depreciation.

    For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your 2014 tax refund estimate and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    Claiming Bank Account Fees

    (last updated 27/03/2014)

    Related Posts:

    Most financial institutions charge account-keeping fees. You can claim these fees where the account was held for investment purposes, for example, a cash management account, since the fee would relate to earning of interest income. You will find these fees listed on your statements or in your passbooks. See this post for a checklist of eTax and Assessable income.

    What you can claim:

    • You can claim a deduction for Financial Institutions Duty that relates to the direct depositing of salary, wages, allowances or payments into your bank account. 
    • You can also claim a deduction for government duties tax or debits tax charged on any outgoing from your bank account where the transaction related to an allowable deduction - for example, work related expenses. See this post for a checklist of eTax and Allowable Deductions

    What you can't claim:

    • You cannot claim a deduction for other bank fees that relate to transactions for private expenditure.

    Apportioning expenses

    If you were not the sole holder of an account you can only claim your share of fees, charges or taxes on the account. For example, if you held an equal share in an account with your spouse, you can only claim half of any allowable account-keeping fees paid on that account.

    E-tax Return

    See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    Payment Deferral for BAS debts

    See also ==> Interest free Tax Break

    See also ==> 50% Investment Allowance

    The Tax Office is offering a deferral of the payment due date for activity statement liabilities for small businesses with an annual turnover of less than $2 million.

    The deferral is intended to provide relief to small businesses facing financial difficulties and encourage them to keep their tax matters on track.

    A deferral of up to two months can be granted for quarterly and annual payers and up to one month for monthly payers.

    Activity statements still have to be lodged on time and no interest applies for the period of the deferral.

    Businesses can contact the Tax Office on 13 11 42 to request a deferral of payment on their next activity statement.

    The deferral applies to activity statements which are required to be lodged and have not yet been lodged.

    (Source ATO media release)

    First Time Buyers Benefit in QLD Budget

    First homebuyers in Queensland won’t pay any stamp duty on purchases of vacant land up to $250,000 under a change announced in the 2009/10 State Budget.

    Treasurer Andrew Fraser says the increase in the stamp duty threshold will save first homebuyers up to $5675 on the purchase of vacant land.

    Transfer duty for first homebuyers is being abolished for blocks of land worth up to $250,000, Fraser says, whereas the threshold previously sat at $150,000.

    "This initiative will not only make vacant land more affordable for first homebuyers to build on, it will also stimulate the building industry, which is a vital part of the Queensland economy," Fraser says.

    Super Co-contributions Payments Delayed 2008/09

    Around 200,000 out of a total of 1.3 million super co-contribution payments may not be made by us [ATO] to super funds by the end of the 2008-09 financial year, due to problems with ATO systems.

    The ATO will pay interest on the payments that have been delayed at the rate specified by the Reserve Bank of Australia, which is currently at 3.16%.

    If you are an eligible recipient, you do not have to do anything.

    The ATO are working closely with super funds on this matter and will clear the backlog of payments, apply interest automatically and make payments to the super funds.

    Interest will continue to be paid until you either receive the payment or it is paid into the relevant super fund.

    More information:

    If you are suffering hardship as a result of these delayed payments, you should contact us [ATO] on 1300 139 027 to discuss your circumstances. We [ATO] can only make payments where you meet the requirements for a direct claim (when you have retired and no longer have a super account eligible to receive the co-contribution).

    The super co-contribution was introduced from 1 July 2003. It is an Australian Government initiative to help low to middle income earners save for their retirement.

    If you are eligible and make personal super contributions to a complying super fund or retirement savings account (RSA), the Government will match your personal super contribution with a co-contribution up to certain limits.

    (Source ATO)

    Demutualisation of MBF

    Online Tax Refuned Estimator ==> Online Income Tax Calculator

    (Source: ATO)

    In May 2008, MBF and BUPA Australia Group implemented a scheme to merge their businesses. As part of that scheme, MBF undertook a demutualisation which entitled its policy holders to a cash payment for the disposal of certain membership rights.

    MBF sent the payment to policy holders for the disposal of their membership rights in MBF on 30 June 2008.

    After the demutualisation took place, a change was made to the law relating to the capital gains tax (CGT) treatment of policy holders of health insurers who receive cash or shares when their health insurer demutualises.

    The changes are contained in Tax Laws Amendment (2008 Measures No. 4) Act 2008.
    Under the new law, policy holders disregard any capital gains and losses that arise when a private health insurer demutualises.

    The changes to the law take effect from 1 July 2007, and apply to the demutualisation of MBF.

    Your cash payment from MBF is not subject to income tax and you do not have to declare any amount in your 2007–08 tax return in respect of the payment.

    Property Investors Targeted for 2009 tax

    Cash Flow Positive Property ==> NRAS - New Class of Rental Property

    In its media release in August 2008, the Tax Office announced that investors will be targeted. The media release highlighted the following point in relation to investment activities:
    • Deductions for rental income increased by 11.8% in 2006-07 returns to 30 June 2008
    • We will focus on landlords who incorrectly claim deductions for interest or those whose claims for capital works exceed the construction expenditure
    • We will write to new investors to let them know how to report rental income and claim deductions, and people identified as being at risk of not complying

    (Source ATO Media Release 2008/42)

    Self Education Deduction and Youth Allowance

    On 1 April 2009, the Federal Court handed down its decision in Symone Anstis v. Federal Commissioner of Taxation. Ryan J. held that Ms Anstis, who received a youth allowance as a university student, was entitled to a tax deduction for her education expenses.

    The Commissioner has lodged an appeal against the decision. Until this matter is resolved, the Tax Office will continue to apply the view set out in Income Tax Ruling TR 98/9. That is, [self] education expenses are not deductible against various Commonwealth educational assistance schemes.

    (Source: ATO)

    Businesses Get a 12-month Tax Break

    Setting up a business? ==> Business Structure. Which one or me?

    On Wednesday, the Commissioner in an address to the Council of Small Business of Australia, announced new measures to support small businesses owing tax.

    "These are:

    • 12-month interest free payment arrangements
      We are providing a 12-month general interest charge (GIC) free payment arrangement for businesses with turnovers of up to $2 million who are struggling to meet their obligations.
    • Interest-free deferral of the payment due date on activity statement liabilities
      We are also providing a deferral of the payment due date on activity statement liabilities to help small businesses manage short-term cash flow problems.
    • Cash flow relief for business: Pay As You Go (PAYG) Instalments
      The Government announced in the Budget that it will provide cash flow relief for small business by reducing PAYG instalments for the 2009-10 income year. It will apply to all taxpayers who pay quarterly PAYG instalments based on their previous year's tax adjusted by GDP growth (that is clients who have chosen the amount option).
    • Cash flow relief for business: GST Quarterly Instalments
      Consistent with the reduced uplift factor for PAYG instalments, and having regard to economic forecasts, and the difficulties being experienced by many businesses, the Commissioner is reducing the GDP uplift factor used to calculate GST quarterly instalments for the 2009-10 income year to 2%."
    The anouncement also encouraged small businesses to approach the Tax Office early if cash flow problems arise and said " Don't wait until the problem is too big and it's too late."

    Truckies & Electricians Targeted in 2009 by ATO

    For further information ==> completing your 2009 tax return

    The Australian Tax Office (ATO) is warning people in certain occupations their tax returns will be under particular scrutiny this year.

    They include truck drivers, electricians and sales and marketing workers.

    The ATO's assistant commissioner, Megan Yong, says claims by those occupations have been rising more quickly than others.

    Ms Yong says claims for travel and home office expenses will be closely examined.

    "This is actually probably the largest single area of the tax return that people make claims, and the expenses have gone up over the last two years, by the tune of around 11 per cent, so it is actually a continued area of Tax Office focus," she said.

    "These particular occupations have come to notice for 2009 because over the last couple of years some of their patterns of claims have been rising over and above the general population.

    "Particular people within those occupations seem to have been making claims which seem to be above average."(Source: ABC Radio)

    The Tax Office said "The most common incorrect claims by people in these occupations include:

    • insufficient documentation available to support motor vehicle and travel expenses
    • claiming the Living Away from Home Allowance without proper documentation and verification from the employer that the claimant must live away from home as a condition of their employment
    • motor vehicle expenses on the basis that the claimant is carrying bulky equipment required for work. It’s important that the claimant can verify that their employer requires them to carry this equipment as part of their employment and there is no alternative storage solution at the workplace, and
    • home offices, mobile phone and internet expenses.

    Common Tax Terms

    The Following are brief explanations of common tax terms:
    • Financial years - what are they? The Australian financial year begins on 1 July and ends on 30 June next.
    • Medicare levy - what is it? Medicare is the scheme which gives Australian residents access to health care. To help fund the scheme, resident taxpayers pay a Medicare levy.
    • Tax returns - what are they? Your tax return is the annual declaration you make which allows the Tax Office to assess how much tax you should pay.
    • Notices of assessment - what are they? Your notice of assessment explains how we have arrived at the amount of your tax refund or debt.
    • Tax refunds - what are they? If you paid more tax during the year than you needed to, the extra is returned to you as a refund.
    • Tax audits - what are they? A tax enquiry or audit is an examination of your tax affairs by the Tax Office.
    • What are deductions? Some expenses, called deductions, can be used to reduce your taxable income.
    • Tax offsets - what are they? Tax offsets directly reduce the amount of tax you have to pay. Most tax offsets are non-refundable, meaning any unused tax offsets are disregarded.
    • Family tax benefit (FTB) - what is it? A government benefit for people with children in their family.
    • Baby bonus - what is it? If you had a baby after 30 June 2001 you may be eligible for the baby bonus.
    • Pay as you go (PAYG) - what is it? The pay as you go system means that you pay your tax as you earn income during the year, rather than having a bill at the end of the year. PAYG can be either "withheld" by an employer or paid as an "installment" for self employed.
    • PAYG Payers - what are they? Your payer may be your employer, Centrelink or an institution.
    • PAYG Payment summaries - what are they? Your payment summary shows how much you earned and how much tax you paid during the year.
    • Goods and services tax (GST) - what is it? The goods and services tax (GST) is a tax charged on the sale of most goods and services in Australia.

    Paying interest in Advance

    (last updated 23/04/2014) 

    Related Posts:

    As the end of the financial year approaches, many investors become focused on tax planning. One popular option is paying interest in advance, for example, paying one year’s interest as a lump sum in June. 


    Making the payment in advance effectively changes the timing of a tax deduction, bringing it forward one year. The advantage is that an investor can claim a deduction for the expense in the current financial year. So, on top of this year’s refund they’ll also get some of next year’s refund a year early (see following case study).
    Example:
    Danny has an investment property which will generate him $20000 income in 2009. He has a $300,000 loan in place used to purchase his investment property. The loan has interest payable at 6% per annum. 

    Danny has been making interest payments steadily through 2008-09 on this loan and has now been made aware of the ability to prepay his interest expense for the next 12 months. Danny also earns $80,000 salary income every year.

    The table below shows the savings Danny can generate by prepaying his interest liability for the 2009-10 income year before 30 June 2009.

    No
    Prepayment

    With
    prepayment
    Salary income
    $80,000

    $80,000
    Investment Income
    $20,000

    $20,000
    Assessable income
    $100,000

    $100,000
    Interest deduction – 2008-09
    $18,000

    $18,000
    Prepaid interest for 2009-10


    $18,000
    Taxable income
    $102,000

    $84,000
    Tax payable
    $26,800

    $19,370





    By implementing the pre-payment strategy, Danny has brought forward a tax saving of $7430.
    There is an obvious advantage to paying interest in advance. However, there are some Tax Office rules and guidelines that must be followed in order to maintain compliance.

    The ATO has a twelve month rule that determines tax detectability. The rule applies to both small businesses and to property investors. Prepaid expenses are deductible in the year incurred, provided the expense relates to a period of twelve months or less. Further, the period it relates to must end no later than the last day of the following financial year. So, for interest paid in advance to be deductible, the amount must be calculated strictly within a twelve month period. If it is calculated for a period over twelve months, the deduction must be apportioned over the term of it relates to.

    Most financial institutions offer “interest in advance” loans. By there nature they are fixed rate loans so the amount of interest can be accurately determined. These loans most benefit experienced investors with a well researched and long-term strategy. Healthy cash flow or good savings habits are needed in order to pay the fixed amount of interest at the same time each year. A final note, investors wanting to utilise interest in advance should check with their financial institution whether that feature is available in their existing loan.

    E-tax Return

    See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
    For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    What is Personal Services Income?

    (updated 15/05/2014)

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    If you received income for personal services as a sole trader, you need to be aware of special rules applying to this income. Introduced in 2001, Personal Services Income (PSI) rules applies to prevent individuals from "alienating" their PSI to either a partnership, company or trust and can operate to restrict "business" deductions.

    Personal services income is income that is mainly a reward for an individual’s personal efforts or skills and can include:
    • personal services income under a pay as you go (PAYG) voluntary agreement
    • personal services income from which an amount was withheld because you did not quote your Australian business number (ABN)
    • personal services income of an independent contractor working under a labour hire arrangement
    • personal services income from the following specified payments:
      • payment for tutorial services provided for the Indigenous Tutorial Assistance Scheme of the Department of Education, Employment and Workplace Relations
      • payment for translation and interpretation services for the Translating and Interpreting Service of the Department of Immigration and Citizenship
      • income as a performing artist in a promotional activity.
    Examples of personal services income are:
    • income of a professional practitioner in a sole practice
    • income payable under a contract which is wholly or principally for the labour or services of a person
    • income derived by a professional sportsperson or entertainer from the exercise of professional skills
    • income derived by consultants from the exercise of personal expertise

    Where it applies, the PSI rules can affect the tax treatment of income in different ways:
    • PSI is included in the assessable income of the individual who's personal efforts or skills generated the income, regardless of any interposed entity (eg partnership, company or trust).
    • Deductions can be restricted to the types of expenses that would normally apply to an employee.
    There are a complicated set of rules to establish whether income from personal exertion is PSI or not. If you think PSI rules may apply to you we recommend consulting with your accountant/tax agent.

    E-tax Return

    See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    What is a Lump Sum Payment in Arrears?

    (last updated 05/06/2014)

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    Lump Sum Payment in Arrears - Lump Sum E

    Lump sum payments in arrears, also known as Lump Sum E, is a receipt of income from an earlier financial year or years and should be shown as Lump Sum ‘E’ on your PAYG payment summary – individual non-business.

    The lump sum payments you received could be any of the following:
    • back payments of salary or wages that accrued in a period more than 12 months before the date of payment
    • salary or wages that accrued during a period of suspension and were paid to you on resuming duty
    • back payments of non-superannuation annuities that accrued, in whole or in part, in an earlier year or years of income
    • repatriation and social welfare pensions, allowances or payments, including those paid by foreign governments
    • periodical workers and accident compensation payments but not payments made to the owner of the policy, and/or
    • Commonwealth education or training payments.
    You may be entitled to a tax offset if you receive lump sum in arrears payments. The tax offset is intended to restrict the amount of tax payable on the payment to the same "marginal" rate that would have applied if it were "received" in the tax year it related to. "Receipt" is the key issue here as tax only applies to income when it is actually "received", not when it is "earned".  See this post for a checklist of eTax and Assessable Income.

    Example:

    In 2014, Jack receives $1000 Lump Sum being an arrears for back pay from 2013. In 2013 Jack's taxable income was $75000 and his marginal tax rate was 32.5%. In 2014, his taxable income is $81000, which includes the Lump Sum in Arrears payment of $1000. The Lump Sum in Arrears payment pushed his income into the next marginal tax rate of 37%. Tax on the Lump Sum at 37% is $370 (ie. only the amount over the margin of $80000 is taxed at the higher rate). If the payment were received in the 2013 year it would have been taxed at 32.5% being $325. Therefore, the Lump Sum in Arrears payment has resulted in Jack being penalised by paying extra tax of $45 (370-325). The rebate is intended to reverse the effect of the extra tax. If, however, the tax effect on Jack was neutral, the rebate would not apply.

    There is no specific item to claim the tax offset so information about the payment must be included as an attachment to the return.

    E-tax Return

    See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
     For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund estimate and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    What is an Employment Termination Payment?

    Generally, an employment termination payment is a payment:

    • received by a person as a result of the termination of their employment, or as a result of the termination of the employment of a person who has died, and
    • received no later than 12 months after that termination.

    The following payments are not employment termination payments:

    • payments for unused annual leave
    • payments for unused long service leave, and
    • the tax-free part of a genuine redundancy payment or an early retirement scheme payment.

    A payment received more than 12 months after employment is terminated does not satisfy the definition of ‘employment termination payment’ for taxation purposes and is assessable income taxed at ordinary marginal rates. However, affected taxpayers can apply to the ATO in writing to have the payment treated as an employment termination payment.

    The 12 month rule does not apply to the taxable component of genuine redundancy payments and early retirement scheme payments.

    Part Year Tax-free Threshold for New Residents

    (last updated 1/04/2014)

    Every Australian taxpayer who is a resident for the full year is eligible for the tax-free threshold. The full-year tax-free threshold for 2014 is $18200. See this post for details and checklist of tax rate and income thresholds.


    Where you become or cease to be a resident of Australia for "tax" purposes your tax-free threshold will be apportioned over part of the year. You can use the following method to work out the number of months that you were a "tax" resident.

    Work out the number of months that you were an Australian resident for the year. This includes the first month you became a tax resident and the last month that you ceased to be a tax resident. The Australian financial year runs from 1 July to 30 June the following year. You therefore need to calculate the number of months from the month you arrived until 30 June, the end of the income year.

    Your adjusted tax-free threshold will have two components:
    • The first is a flat amount of $13,464
    • The second is an additional $4736, apportioned for the number of months you have been in Australia during the income year, including the month you arrived.
    Apply the number of months you were a "tax" resident over the twelve. calculate the variable amount of tax free threshold then add the fixed amount of the tax free threshold.

    Example: 


    John became an Australian resident on 17 April this year. This means he has been in Australia for three months in the income year. His tax-free threshold is therefore:

    = $13,464 + (($4,736 x 3) / 12)

    = $13,464 + $1184)

    = $14,648
             

    This means John will not have to pay tax on the first $14,648 of his taxable income for the income year. For any taxable income over $14,648, he will start to pay tax at the rate of 19%. The thresholds for the other tax rates will not change.

    As John had a lower tax-free threshold than a resident for a full year, he will pay more tax on the same income if his taxable income exceeds $14,648. This only happens once – for each subsequent year John is a resident he will be entitled to the full tax-free threshold.

    For help with your eTax return see our eTax Return Checklist.

    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your 2014 tax refund estimate and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 


    Split or Linked Loans - Tax Consequences

    Related Posts:

    Background to Split Loans

    In the late 1990’s some financial organisations began marketing “split” or linked loans on the basis of their potential tax advantages. The loan was structure into to two “split” sub accounts: one for investment use and one for private use. The loan repayment amount was calculated on the total borrowings. However, repayments were allocated firstly to the private account. Total interest was calculated on the closing balance in each sub-account and allocated to the respective accounts. Consequently, the balance of the private sub-account reduced with each payment while the balance of the investment sub-account continued to compound with the capitalisation of interest as it remained unpaid. The tax effect was to counter the “purpose” test by converting private debt to investment debt.

    ATO's Responses

    Naturally the Tax Office was not happy with the split loan concept and issued Taxation Ruling TR 98/22: Income tax: the taxation consequences for taxpayers entering into certain linked or split loan facilities. 

    The Tax Office view was that the extra interest that accrued in the investment sub-account was “not deductible…and that Part IVA of the Income Tax Assessment Act 1936 (the anti-avoidance provisions) applies to split loan arrangements.”

    Case Law

    The law was tested in Hart’s case where the court was told that the couple's $298,000 loan taken out in 1996 would have generated $169,470 in increased income tax deductions as a result of their split loan. It meant their home was paid off faster, but it blew out what was owed on the loan on the investment property from $120,592 to $233,085.

    The Tax Office lost the first round but in the May 2004, the High Court upheld the Tax Office view.
    This is not to say that “split loans” will attract tax office attention. It simply means that split loan facility repayments must be apportioned between the sub-accounts. 

    In fact, accountants prefer split loan facilities as they clearly distinguish between investment and private accounts and associated interest. Where a line of credit facility is used, a split loan can also isolate extra repayments and redraws that tend to occur within these loan structures. 

    Example - each sub-account can be setup with either interest only, principle and interest or line of credit. Where the investment sub-account is setup as interest only and repayments of the interest are made, what occurs in the private sub-account, whether extra repayments or additional redraws, will not affect tax deductability of interest in the investment sub-account.

    E-tax Return

    See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
    Web Based Tax Return App:

    A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

    Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

    Applying for an ABN? New Entitlemnt Test

    There have been some changes made to the process for individuals (or their representatives) when they apply for an ABN.

    An entitlement test must be passed before an ABN is issued.

    The registration process has been changed to ensure that only those individuals who are in business and who are legally entitled receive an ABN.

    This change means individuals (or their representatives):

    • will need to answer a short series of questions to confirm their entitlement to an ABN
    • can withdraw their application if they are assessed as not being entitled to an ABN
    • may have their ABN registration refused if they decide to proceed with their application despite being assessed as 'not eligible'
    • may, in some cases, have their application referred to Australian Business Register (ABR) staff who may request more information to determine their entitlement to an ABN.

    All clients who are refused an ABN will receive written confirmation of the decision.

    (source ATO)

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