Welcome!
Hi There,
I hope you are well! This is quite a lengthy newsletter. There's a lot to cover, but don't feel overwhelmed. I'm here to help!
Let's get into it!
Superannuation
The current quarter superannuation is due by the 28th of July as normal, however if your clients would like to claim a tax deduction in the current year, the super needs to be processed and paid in June. If you are using Xero, the deadline is the 18th of June to be able to claim on time.
Remember that super is only deductible once it is received by the superfund. Simply paying it does not mean it's deductible.
Yes, this may not be the best option if you have payruns in the last half of June. You have a few options here. If you have a small business where the directors are the only employees, you can process your payments early. The other option is to pay the super up until that 18 June and pay the balance before 28th of July.
If you client is paying an additional amount of super, definitely get it in by the 18th of June.
Tax lodgements and Extensions
A reminder that if you get a new client that has an overdue tax return, we need to apply for an extension (deferral in ATO speak)
As tax agents, we have targets we need to meet - 85% on-time lodgements.
If you have a new client with an overdue tax return, you can apply for an extension. You can get up to a 6 week extension.
It is important to keep the ATO updated on any issues with lodgements and payments as they have been ruthless of late.
If you have any issues getting your clients tax returns lodged, please reach out so we can work out a solution.
Directors loans
You will hear me talk about this a lot. This is one of the key areas that the ATO are currently focussing on, especially with the recent court decisions on unpaid present entitlements (UPE's).
A directors loan, otherwise called a div7a loan after the section of the act (It's a riveting read 😂) is where a director, shareholder or an associate take a loan from a company.
It's perfectly fine for a director or one of their associates (partner, children etc) take a loan from the company. For us, we need to make sure we have the paperwork in order for the loan to be a complying loan.
We also need to look at loans between related companies. The ATO is also scrutinising these to ensure that it is a complying div7a loan. In the past, we would consider these commercial loans and wouldn't fall under Division 7a, however the ATO does not take this view. I take the opinion that it is better to have something in place rather than nothing, so please ensure these types of loan comply with division 7a.
Lastly, the most complicated part of div7a loans, and the thing that is currently been fought in court, is UPE's. Basically this is where a distribution from a trust is declared but not paid.
If there was a distribution declared from a trust to a company, the ATO is of the opinion that this is a div7a loan, and the proper paperwork needs to be in order to be a complying loan.
So what is the consequence of a non-complying loan? It ain't pretty! The loan will become a deemed dividend with no franking credits attached. This effectively means that the client pays tax twice on the profits (maybe not twice, but I'm not a mathematician). This is bad!
You may ask why we have to do this. Well , you can thank Kerry Packer for this. Remember this gem?
I know this a wordy section. I will send through instructions on this in the coming weeks.
Rental properties
Another area the ATO is scrutinising is rental properties.
Repairs vs improvements
The ATO are cracking down on repairs and improvements.
If a client is fixing something, for example a toilet needs some new parts as it's leaking, that is a repair. If they replace the whole toilet, that is an improvement. What if the bowl is cracked? I reckon you can argue any way, but it is still likely to be an improvement.
Improvements need to be depreciated over the life of the asset.
Borrowing expenses
Borrowing expenses are deductible over 5 years or the life of the loan, which ever is less. This includes:
- Brokerage fees
- Establishment fees
- Funding/origination fee
- Lender mortgage insurance (LMI)
Tax deductions prior to earning income
This another one of those tricky areas. A lot of people will but a property and spend time doing it up so they can get a grater return.
Firstly you need to look at whether it was available for rent. If the property was, the expenses are generally deductible.
If not, you likely will not be able to claim any deductions. Under TR 2004/4, however, it points to the fact that interest may be deductible over this time.
I'm really not sure why interest may be deductible, but other expenses are. But, we have the ruling, so let's stick with it.
If you have any questions around rental properties, let me know.
Year End
With year end coming up in only a few weeks, it's a great time to get your clients accounts up to date and reconciled. If everything is up to date, it's much easier and quicker to get BAS completed and tax returns lodged.
With the final BAS of the year, I highly recommend reconciling GST, PAYGW and PAYGI. If there are minor differences, we can fix them up in the June BAS, however if there are big differences, we need to relodge the BAS's they relate to.
It's also a good time to write off any bad debts and do a general tidy up of your clients balance sheets.
If your client does have stock, they may need to do a stocktake. You may also be able to use the simplified stock rules. This applies to small businesses and you can estimate your stock on hand. The key here is there cannot be a difference of more than $5,000 between years, so if your client currently has nothing on their balance sheet, the most you can adjust for is $5,000. If they have more than this, you will need to do a stocktake.
Xero has a handy checklist. You can grab a copy here.
STP Finalisation
STP finalisation is due by the 14th of July. We have a bit of time before this is due, but its good to start preparing for it, especially if you are planning on paying superannuation by the 18th of June.
If you have any items that need to be corrected, get them done as soon as you can. If you need help, please reach out.
Xero has an STP checklist. You can see it here.
Other things to remember
A reminder of a few things that need to be considered by 30 June.
- Tax planning
- Prepaid expenses
- Purchase of assets up to $20,000
- Dividend statements - due by the 30th of June
- Trust Distributions - Due by the 30th of June
- Division 7a loans (loans form the company to a director or associate) - Consider new loans and repayments
Lastly, Xero have roadshows coming up. I highly recommend getting there if you want to learn more about Xero.
If there is anything you would like to see, or if you have any feedback on this newsletter, let me know.
As always, if you have any questions, please reach out.
Have a great week!
Cheers,
Daniel
By the way, does anyone get the Groucho Marx reference? Check it out!
