Tax & Accounting

Australia may have been slow to take up Uber originally, but these days, it’s full steam ahead for the thousands of drivers who have signed up with the global ride provider.

The extra income is no doubt a drawcard, but if you’ve been quick to get behind the wheel, have you thought about what impact this bonus salary will have on your tax return?

We’ve looked at some common questions below and provided some helpful answers so that you don’t have to take the foot off the pedal when tax time approaches.

Do I need to declare my Income to the Australian Taxation Office (ATO)?

Yes. Any income you earn is required to be declared to the ATO.

Money made as an Uber driver is still ‘income’ – it should not just be considered ‘cash in hand’ or pocket money that can quietly be slipped under the mattress.

Declaring your income is important – now more than ever – as the ATO is receiving large amounts of soft data from sources such as Uber. If you fail to declare your income, you will not only be required to pay tax, you will also be charged penalties and interest.

What deductions am I able to claim?

You can claim the business use portion of the following:

• Tolls
• Parking
• Passenger costs, i.e water, mints, etc
• Licensing or service fees paid to Uber
• Mobile phone bills
• Some costs associated with becoming an Uber driver

There may be other deductions available on a case by case basis, so it is important to keep all your receipts to discuss with your accountant at tax time.

It should be mentioned that you are not able to claim the following:

• Costs for your driver’s license
• Fines – parking, speeding, red light, etc
• Clothing or meals

What’s the difference between claiming cents per kilometre and logbook?

Cents per kilometre

• Can only claim up to 5,000 kilometres
• From 1 July 2016 the rate is 66 cents per kilometre
• Using cents per kilometre includes general car expenses such as, servicing, petrol, depreciation etc, therefore not able to claim any additional expenses for your car.

Logbook

• Must keep a logbook over 12 consecutive weeks, which is required to be updated every five years.
• Your logbook must include the following:
  • Date of travel
  • Odometer reading at the start and end of the drive
  • Number of kilometres travelled
  • The reason for the travel
• You may be able to claim the following:
  • Car insurance
  • Services
  • Repairs
  • Petrol
  • Depreciation
  • Car registration
  • Loan interest

To find out more about the kilometre vs log book reporting options, read our blog post ‘Get your motor running‘.

Click here to download a log book template

Do I need to register for GST?

The short answer is yes. But it’s complicated.

The general rule is that a small business must be registered for GST, if it has a turnover of more than $75,000. Most drivers wouldn’t meet this threshold if they’re just working part time out of hours to supplement their main income. So you’d think they’d be exempt from GST rules? Incorrect.

In August 2015, the ATO announced that all Uber drivers will be required to register for GST – regardless of turnover. Uber recently challenged this in the Federal Court but lost with Justice John Griffiths maintaining that Uber is a taxi service under the law, and should be treated accordingly. So what does this mean? If you’re a driver who hasn’t been paying attention to your GST responsibilities, you could find yourself in a spot of trouble. Speak to an accountant who can help with your registration and make sure you do the right thing.

What do I need to consider in terms of tax when it comes to setting up my new Uber business?

• Open a new bank account that is purely for your Uber income and expenses; this will make it easier to determine what are personal and business related expenses.
• Make sure you keep aside between 30 to 40% of your business income to cover tax payable.
• Engage a Tax Agent such as The Hopkins Group; they will be able to provide advice and assist with completing your quarterly BAS and your Annual Income Tax Return.
• Look into using a software program such as Xero. It gives you the ability to allocate your income and expenses, you can save all your receipts, pull out reports, etc. An accountant at The Hopkins Group can provide you with a demonstration of this handy tool.

Life as an Uber driver does have its benefits, but you need to make sure you play by the rules so the extra work and earnings aren’t in vain. You need to treat your ‘side job’ as a driver the same way you would your ‘day job’ and be responsible with your record keeping and filing.

To discuss your tax responsibilities and make sure you stay on the straight and narrow with the ATO, speak to an accountant at The Hopkins Group on 1300 726 082 or send us an online enquiry.

 

 

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

 

So, you’re a contractor who runs your business through a company, partnership or trust in order to take advantage of tax planning opportunities, right? Think you’ve got it sorted? Nothing to worry about? Maybe not.

Enter the fun police

Just when you think you’ve got your business structure under control and are enjoying the tax benefits of using an entity, along comes the personal services income (PSI) rules to ruin the fun.

Personal service income is a significant tax issue for contractors. The application and implications of this important set of rules is often misunderstood. The PSI rules simply allow the ATO to ‘look through’ your business structure and tax you as an individual.

The rules concerning the alienation of personal services income were introduced to prevent arrangements where individual taxpayers earning personal services income through a company, partnership or trust structure are able to split income with other family members and claim deductions that otherwise are not available to other taxpayers.

Have we rained on your parade?

Are you worried you’re breaking all the rules and fear this structure will no longer work for you? It’s not necessarily all bad news . . .

We simply need to identify if you are affected by these rules and help you manage your obligations. At The Hopkins Group we work with our clients affected by the PSI rules to manage regular activity statement and PAYG obligations making the process as stress free as possible. Below is a brief summary of when the PSI rules apply and the implications.

The rules are complex and certainly an area where help should be sought! If you believe you may be affected – or not sure if you are – please contact one of our accountants to discuss your personal circumstances.

What is personal services income?

Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual.

This could be writing copy for a website as a freelance journalist, mowing lawns as a gardener, doing bookkeeping for a few casual clients . . . you get the drift. Anything where the work you do (and not the products you supply) gets the job done. In our experience, professions most commonly affected by the rules are IT consultants, medical practitioners and lawyers.

When working out if you have received PSI, you need to look at each contract or job individually. If more than 50% of the income received for a contract was for your labour, skills or expertise, then all income from that contract is classified as PSI.

An example is Ben who is a computer consultant who provides his personal services through a family company, BenCom Pty Ltd.

The company has a contract to provide IT support services performed by Ben. This is personal services income because it is mainly a reward for Ben’s personal skills and efforts. BenCom Pty Ltd also operates a computer spare parts business that sells computer hardware and software.

Ben provides his personal services to install software for clients and the cost of installation is usually built into the price for the hardware, and represents a relatively small proportion of the price.

Income from these services would mainly be for the sale and supply of goods. It would not be personal services income of Ben, but would rightly be regarded as income of the company.

The fall out

If you have PSI income there are fewer deductions you can claim against this income, and you will need to report this income as your own individual income.

For example, you won’t be able to claim the following against PSI:

• rent, mortgage interest, rates or land tax for your home (or your associate’s home)
• payments to your spouse, or other associate, for non-principal work such as secretarial duties
• expenses that you would generally not be able to deduct as an employee.

Will I save tax?

If you operate your business through a company, partnership or trust the PSI your business receives needs to be allocated (or ‘attributed’) to each individual who performed the services and the individual will need to declare the income in their individual tax return. Basically, income from your personal services is treated as your assessable income even through it was earned through a separate entity. This is achieved through paying and/or attributing wages to you from the business. As a result your business will also have additional PAYGW obligations.

The upshot is that because PSI income is ultimately assessed to the individual there is generally no tax saving in operating through a company or trust.

What if I’m a genuine business?

If you received personal service income but are able to pass the following tests then the PSI rules don’t apply and your business is a classified as a “personal services business” (PSB). When you are a PSB, there are no changes to your tax obligations.

You are considered a PSB if your business can pass one of the PSB tests:

1. The results test
2. The 80% test
3. The unrelated client test, employment test, and business premises test

Put simply, the income derived in these circumstances has the characteristics of true business income not that of salary or wage income earned by an employee. Therefore, the business is eligible for the usual business deductions and the income is assessed to the entity that earned the income if it is a company partnership or trust.

See here for a handy breakdown of the tests to help you work out if the rules apply to you.

“My employer requires me to contract through a company?”

This is something we see often and it usually has to do with Workcover obligations. If this is the situation you find yourself in then The Hopkins Group can help you with your monthly payroll and quarterly GST obligations.

Taming the wild beast

If you are reading this and have made it through to the end, well done! The PSI rules are a complex animal, but never fear as The Hopkins Group accounting team is here to wrangle your tax affairs into submission and help you to manage your obligations. You are not alone. If you would like to chat to an accountant, drop us a line or give us a call on 1300 726 082 to find out how we can help you.

 

Sources:
Income tax Assessment Act 1997 – SECT 84-87
Australian Taxation Office

What do you have planned for this fine Melbourne winter’s weekend? Heading to the MCG for a game, catching a movie at the International Film Festival, a date with some dumplings in China Town, stocking up on goodies at the South Melbourne market with the family, or causing havoc on the streets catching Pokémon!?

Well there is one activity that might just, just, be more exciting, and I think you know where we are going here…It’s time to prepare your tax return! I am excited. Am I just a soulless accountant with a distorted understanding of fun? Arguable, but stick with me.

Deductions are the Pikachus of your tax return

Having beavered away for the last twelve months earning an income – whether as an employee or through business – it is time to lodge your tax return and get back some of your tax dollars if you can.

If you are expecting a refund, now is the time to collect all of those valuable deductions together to maximise the amount you will receive as a refund. Just think of the extra cash you will have (in two weeks’ time according to the ATO’s current processing time if you lodge today).

What will you do with your refund? An extra glass of gluhwein, new shoes, cheeky weekend getaway? Better still, make your financial planner (and future self) proud and tuck the extra money straight into your savings account, mortgage, investment portfolio, or pay off that last stubborn chunk of credit card debt that has been lingering like a bad smell since Christmas. Mine will be going straight into my savings account and, like a squirrel catching wind of a large batch of acorns to stow away, I can’t wait to increase my emergency fund and sense of financial security.

The early bird gets the worm

Whether you are one to keep meticulous records or a master of last minute madness, lodging your tax return is something that you can’t hide from. It isn’t always a fun job, but if you would like your tax refund completed thoroughly and returned sooner rather than later, tackling your tax return early will allow you the time to think of all the deductions you have incurred while they are fresh in your mind. Scrambling to complete returns when deadlines are approaching often means items are forgotten.

If you are expecting to have to pay tax this year, preparing for this early is equally wise as this will allow time to plan for payment before the due date. Set aside some time to sit down and review the past year of income and expenses. This can be a valuable exercise not only for tax but as an opportunity to assess your spending habits over the past year and look at whether the financial goals you set yourself last financial year were met or how you are tracking with any financial new year’s resolutions you made in January.

Panning for gold

Make sure you claim all the deductions which you are entitled to. For a comprehensive checklist, click here to download our 2016 tax return checklist. Some commonly forgotten deductions include:

• professional membership fees
• income protection insurance premiums
• work related education expenses
• portion of your mobile phone bill used for work, and
• home office expenses.

Remember, your individual tax return is due on 31 October 2016, unless you choose to lodge your return through a registered tax agent which will extend the due date up until 15 May 2017.

Adopting good habits

Don’t forget that a new financial year has commenced too, so let’s start off this year as new improved organised efficiency masters. New financial year, new organised you! Make the 2017 financial year a breeze by scanning invoices and saving them straight into a dedicated folder as you receive them and try out a tax record keeping app and or online tool available to track deductions. If you are starting a business, talk to your accountant about software you can be using to make record keeping easy, and talk to your accountant for general tax advice in advance.

A problem shared is a problem halved

As we’ve already discussed, tax time can be painful. But you don’t have to go it alone. If you would like to chat to an accountant to help with the preparation of your tax return, drop us a line or give us a call on 1300 726 082 to find out how we can make the whole process easier for you.

And don’t forget to download your tax return checklist. It’s like listening to your Mum before school camp – we make sure you’ve got everything packed in your suitcase before you head off. But we promise not to make you do the dishes.

The Australian Taxation Office (ATO) is all about sharing, caring and true love . . . oh didn’t you know? Now more than ever, lodging your tax returns has become a family affair.  

Your relationship and family circumstance affects the calculation of the Medicare levy surcharge, private health insurance rebate and other government entitlements. Thus, reporting certain details about your spouse and dependents is now required. Below is some of the information that you may need to supply to the ATO as your relationship and family situation change.

What’s in a name?

First comes love, then comes marriage, then comes . . . well, for the traditional amongst us, the joyous task of updating your name with numerous organisations. Never fear my friends, the fun isn’t over, the ATO also needs to be updated before your next tax return is lodged.

The quickest way to update your name with the ATO is over the phone. In order to do this you will need to have handy either your Australian marriage certificate or Australian change of name certificate.If you would like assistance, you may provide a copy of your certificate to a member of The Hopkins Group accounting team who will be delighted to contact the ATO on your behalf.

Are you going steady?

If you had a spouse during the financial year, it is necessary to include in your tax return their name, date of birth, and dates for which they were your spouse if not the full year. You must also include your spouse’s taxable income, reportable fringe benefits, and child support your spouse paid (see the ATO website for full list).

So who actually qualifies as your spouse? The ATO defines your ‘spouse’ to include another person who you are in a relationship with that was registered under a state or territory law, or although not legally married to you, lived with you on a genuine domestic basis in a relationship as a couple.

Babies!

Blessed with a brand new bundle of joy? It is required that the number of dependent children you have during the financial year be reported in your tax return. If a new addition has arrived since you lodged you last tax return, you need to inform your accountant by providing them with the baby’s name and date of birth. This information allows the ATO to calculate the correct private health rebate amount you are eligible to receive, calculate the correct Medicare levy surcharge if applicable, and assess your eligibility for other entitlements which may benefit your family.

The ATO defines a ‘dependent child’ as your child who is under 21 years old, or 21 to 24 years old and a full-time student regardless of their income. The child must be an Australian resident and you must have contributed to their maintenance.

Empty nesters

Equally important as adding the number of dependents to your return, it is also important that the number be reduced as children become adults and begin to support themselves. If your child has finished their education and become independent financially, it is important to let your accountant know this change has occurred so that the correct number of dependants continues to be reported.

If you would like to discuss any of the above information please don’t hesitate to contact one of our accountants at The Hopkins Group on 1300 726 082 or info@thehopkinsgroup.com.au

Reference: www.ato.gov.au

If you have ever tried to claim your motor vehicle as work-related expense at tax time, you may recall that in previous financial years there were three ways to claim the tax deduction for your motor vehicle. These were:

• the kilometre method;
• the 12 per cent of original cost method; or
• the one-third of running costs method depends on which method that would give you the best deduction.

However on 1 July 2015, the Australian Tax Office (ATO) removed the old 12 per cent of original cost and one-third of running costs methods. There are now only two methods for calculating your car expenses:

• the ‘cents per kilometre’ method; and
• the ‘log book’ method.

How the Cents per Kilometre Method Works

Under the cents per kilometre method, you can calculate how much you can claim by multiplying the business kilometres you travelled (up to a maximum 5,000 km), by a cents per kilometre rate.

For the 2015 financial year, there were three rates available depending on your car’s engine capacity, with the maximum rate being 77 cents per kilometre. From 1 July 2015, the ATO have simplified the cents per kilometre method to a single rate of 66 cents per kilmetre no matter what your vehicle’s engine capacity is.

This is unfortunate news for those who use this method with their larger sized car as the rate is no longer determined by your car’s engine capacity; the flat rate does not account for higher costs required to run a large car.

If you’re using this method, you only have to show how you calculated the work related kilometres. Diary records will be sufficient.

Example

Jane travelled 6,000 business kilometres during the income year. Jane worked out she could only claim up to 5,000 business kilometres using the cents per kilometre method, as follows:

5,000 km x $0.66 per km = $3,300

How the Log Book Method Works

This method is most advantageous if you travel a significant number of kilometres for work purposes during the financial year. Using the logbook method, your tax deduction claim is based on your car’s business use percentage. Your business use percentage is the percentage of kilometres you travel in your car for business related purposes.

To work out the business percentage, you will need to keep a logbook for your car for a “typical” 12 week period. These must be 12 consecutive weeks (ie. 12 weeks in a row), and must include every trip you take during that period, not just your business related trips.

Your logbook must include the following detail:

At each entry:

• the date the journey began and the date it ended for each day if journey longer than a day;
• the odometer reading at the start and end of the journey;
• the number of kilometres the car travelled on the journey;
• the reason for the journey.

In each log book:

• the period the log book begins and ends;
• the odometer readings at the start and end of the log book period;
• the total kilometres travelled during the log book period;
• the business kilometres;
• the percentage of total kilometres that were business during the period.

Example

At the end of the income year, Jane’s logbook shows she travelled a total of 11,000 kilometres, of which 6,600 were for business.

To work out the percentage the car was used for business purposes, Jade made the following calculation:

6,600/11,000 × 100 = 60%

Jane’s total expenses, including depreciation, are $9,000 for the income year. To work out how much he could claim, Jane completed the following calculation:

$9,000 × 60% = $5,400

The changes made by the ATO hope to modernise the car expense deduction rules, and simplify the way taxpayers make these types of deductions. If you intend to claim motor vehicle expenses in your future tax returns and are unsure of what will be the best method for you, please don’t hesitate to contact our accounting team on 1300 726 082.

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Kezia Eman is an accountant with The Hopkins Group (John Hopkins Accounting Pty Ltd). This blog post contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs.

Most people would know that you are able to claim your mobile phone expenses as a work-related deduction, however there is often confusion around how much can be claimed and how the claim can be supported. To help clear this up a little, here is what we do with your mobile phone expense claims at The Hopkins Group.

First of all to be able to claim work-related deductions the Australian Taxation Office (ATO) has a few requirements:

• You must have spent the money yourself and weren’t reimbursed
• It must be related to your job
• You must have a record to prove it (there are some exceptions to this rule)

When considering mobile phone expenses, we break claims down into two categories, split by how much you intend to claim.

Claiming under $50

If you use your phone for the odd phone call or text message, you can calculate your deduction using the following from the ATO:

• $0.75 for work calls made from mobile, and
• $0.10 for text messages sent from your mobile.

Example:

On occasion Jane uses her phone for work, making on average three calls and ten text messages a month. This works out to be:

3 calls x 11 months x $0.75 = $24.75

10 SMS x 11 months x $0.10 = $11.00

Overall Jane can claim a deduction of $35.75

Why 11 months? The ATO makes the assumption that Jane has taken the four weeks annual leave allocated to her during her working year, bringing 12 months down to 11.

Claiming above $50

For those that use their phone more regularly, you are required to keep a record of all work-related calls and messages. To work out how much you can claim, the easiest option is to identify on an itemised bill the percentage of work-related calls made from your phone or the percentage of time the phone is used for work purposes.

Example:

Bob is on a $70 per month phone plan. To claim some of this cost, he goes through one of his bills and determines that 60% of his calls are work-related.

Bob is able to claim:

$70 x 11 months = $770

$770 x 60% = $462

If you don’t receive an itemised phone bill, don’t despair — it is still possible to claim your phone expenses. To do so, you will be required to keep a log book of your calls for a four week period, showing all calls made and the nature of each call.

Example:

Phoebe uses a prepaid mobile, which costs her $40 each month. Phoebe keeps a record over four weeks of all her calls and calculates that 30% of her calls are work related.

Therefore, Phoebe can claim:

$40 x 11 months = $440

$440 x 30% = $132

Substantiation of claims has been a focus of our accounting team, as we work with clients to ensure that we ask the right questions and that you have the right information on file for your claims. As a general rule any deductions you intend to claim need to have supporting documents, except for those under $50. These documents need to be kept for up to five years.

If you have questions about claiming work-related deductions such as mobile phone usage, please don’t hesitate to contact The Hopkins Group Accounting Team.

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Abigail Lee is an accountant with The Hopkins Group (John Hopkins Accounting Pty Ltd). This blog post contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs.