Image

Image

 

This book is dedicated to the

Roman emperor Nero,

(37AD – 68AD).

 

 

Strange as it may seem today, in Ancient Rome, urine was a valuable commodity. It was collected from the cesspools where the lower classes of society emptied their small pots, and the public toilets which the upper classes used, and recycled. The Roman’s used the urine to bleach/clean clothes, make leather soft, dye clothes, make gunpowder, and to whiten their teeth.

The Roman emperor Nero (37AD – 68AD), requiring extra funds to undertake capital works programmes, enacted a urine tax, known as the vectigal urinae, on the buyers of urine. Although the tax was eventually removed, it was re-enacted around 70 AD with the succession of Emperor Vespasian. Vespasian, was known for his love of money and ruthless taxation. He re-applied the tax to urine collection, and extended it to the use of public toilets. The urine tax helped fund the construction of Rome’s Colosseum. The Colosseum was constructed in 72AD – 80AD and is the largest amphitheatre ever built.

When Vespasian’s son, Titus, expressed his disgust over the urine tax, the emperor simply showed his son several gold coins and asked — ‘See, my son, if these have any smell.’ When Titus agreed that they had no odor, Vespasian replied — ‘… and yet, they come from urine!’ The phrase ‘Pecunia non olet’ is still used today to say that the value of money is not tainted by its origins.

 

TaxFitness and Tax Planning

TaxFitness® provides automated tax planning software that generates tax planning reports for clients in as little as 5 minutes. The cloud-based software utilises over 220 selected tax planning strategies to legally maximise their tax savings. See further details at www.taxfitness.com.au

Tax planning is the process used by individuals and businesses to structure their affairs to legally reduce their tax liability and make savings. This is achieved by using deductions, exemptions and structures to reduce taxable income.

Who can benefit from tax planning? It’s simple – all taxpayers. Our research shows that 95% of taxpayers are paying more tax than they are legally required too.

TaxFitness founders – Darren Gleeson (on the left), Roydon Snelgar (centre), and Tracy James (on the right).

 

Disclaimer

The content of this book is general information only. It is not and is not intended to be taxation, accounting, business, financial, legal or other professional advice and should not be acted or relied upon as such. Specific professional advice should be sought in respect of particular circumstances and requirements, as the information in this book may not be suitable or applicable to particular circumstances and should not be acted or relied upon. The authors have used reasonable endeavours to ensure that the content is correct and current but do not guarantee that it is correct or current and will not be liable or responsible if it is not. In no event will the authors or any related entity of those persons, or any of their directors, principals, agents, employees or representatives, be liable for any loss, damage, costs or expense (whether direct or consequential) incurred as a result of or arising out of or in connection with this book and the content included in it in whole or in part including but not limited to any error, omission or misrepresentation. The authors also disclaim all representations and warranties, including but not limited to, warranties as to the quality, accuracy or completeness of the information of whatsoever nature and warranties of fitness for a particular purpose.

 

CONTENTS

TaxFitness and Tax Planning

Disclaimer

Introduction

1.   Salary Packaging Private Motor Vehicles

2.   Home Office Occupancy Expenses

3.   Novated Motor Vehicle Leases

4.   Transporting Heavy or Bulky Equipment

5.   Jointly Owned Motor Vehicle

6.   Travel Between Two Unrelated Places of Employment

7.   ‘Double Dip’ For Employees Claiming Motor Vehicle Expenses Reimbursed by Their Employer

8.   Overtime Meal Expenses

9.   Relocation Expenses

10.  Home to Work Travel

11.  Change from Employee to Contractor

12.  Salary Packaging Associated Leases

13.  Itinerant Travel

14.  Concessional Superannuation Contributions

15.  Self Education Expenses

16.  Living Away from Home Allowances

17.  Bona Fide Travel Allowance

18.  Death Benefit Employment Termination Payments

19.  Double Tax Agreement

20.  Double the Deductible Super Contributions Limit

21.  Refund of Division 293 Tax for Temporary Residents Permanently Leaving Australia

22.  Employee Share Schemes

23.  Foreign Pension Undeducted Purchase Price

24.  Departing Australia Superannuation Payment

25.  Deductions against Workers Compensation Payments

26.  Self-Development Courses and Seminars

27.  Non-Residents’ Australian Income

28.  Accommodation and Meals at Remote Sites

29.  Income Protection Insurance

30.  Airport Lounge Memberships

31.  Overseas Conferences, Courses and Study Tours

32.  Sunglasses and Sunscreens

33.  Penalties, Fines and Interest

34.  Averaging for Authors, Artists, Inventors and Sportspersons

35.  Private Health Insurance

36.  Temporary Residents

37.  Spouse Super Contributions

38.  Donations

39.  School Building Fund Levy

40.  Legal Expenses

41.  Managing Tax Affairs

42.  Resident vs Non Resident

43.  Genuine Redundancy Payments

44.  Protective Clothing

45.  Employee Truck Drivers

46.  Compulsory Work Uniform

47.  Zone or Overseas Forces Tax Offset

48.  Refinancing the Family Home

49.  Negatively Gearing the Family Home

50.  Temporary Absence Rule

51.  ‘Four Year Construction Rule’

52.  Overseas Super Transfer

53.  Division 43

54.  Rental Property Repairs

55.  Five Year Rule for New Residential Premises

56.  Property Related Transactions

57.  Dividend Deductions

58.  Share Trader ‘v’ Share Investor

59.  Share Investment Seminars

60.  Full Commutation of a Transition to Retirement Income Stream

61.  Main Residence 6 Month Rule

62.  Testamentary Trust

63.  Crystallise Capital Losses

64.  Deceased Estates Taxed Under s99

65.  Margin Scheme

66.  Special Disability Trust

67.  Property Seminars

68.  Holiday Homes

69.  SMSFs and Shares

70.  Life Insurance Held Through Superannuation

71.  Two Hectare Main Residence Exemption

72.  Agribusiness Schemes

73.  Transition to Retirement

74.  Investment Bonds

75.  Transfer Personal Investments into Super

76.  Property Depreciation Reports

77.  Self-Managed Super Fund Borrowings

78.  Bitcoin

79.  Interest Deductions for Rental Properties

80.  Salary Packaging Rental Property Expenses to Double Dip and Save the GST

81.  Negative Gearing

82.  Super Withdrawal and Recontribution Strategy

83.  Divorcing Spouses CGT Asset Rollover

84.  Scrip for Scrip Rollover

85.  Business or Hobby?

86.  $20,000 Asset Write-Off

87.  Employee Meal Expenses on Business Premises

88.  Research and Development

89.  Primary Production Business

90.  Cash vs Accrual Accounting Methods

91.  Environmental Protection Activities

92.  Crowdfunding

93.  Film Industry Incentives

94.  Luxury Car Leases

95.  Occupational Health and Counselling

96.  Intangible Depreciating Assets

97.  Changing Effective Life of Depreciating Assets

98.  Tax Consolidation

99.  Fuel Efficient Luxury Cars

100. Art

101. Log Book for Motor Vehicles

102. Reducing Super Guarantee Payments

103. Delay Income

104. X-Box, Foxtel, and Pinball Machines

105. Prepayment Deductions

106. Rollover from Sole Trader to Company

107. Farm Management Deposits

108. Accelerated Depreciation for Farmers

109. Family Trust Distributions to Adult Children

110. Retirement Exemption – CGT Concession for Small Business

111. Carbon Sink Forests

112. Eligible Termination Payments

113. Prepaid Income – Arthur Murray Case

114. PSI Entity

115. Share Buybacks

116. Small Business CGT Rollover

117. Avoiding Value Shifting Rules

118. Streaming Trust Income

119. GST Going Concern Exemption

120. Passively-Held Assets

121. Accrued Directors’ Fees

122. Entertainment

123. Valuing Trading Stock

124. General Pool Balance Less Than $20,000

125. Small Business Income Tax Offset

126. Loss Companies or Trusts

127. Active Assets Indefinitely

128. 15 Year Small Business CGT Exemption

129. Blackhole Expenditure

130. Transfer Pricing

131. Sponsorship

132. Companies

133. Provisions and Reserves

134. Fuel Tax Credits

135. Non Commercial Losses

136. FBT Exemptions and Reductions

137. Allocating the Purchase Price of Business Assets Acquired

138. Husband and Wife Partnerships

139. Tax Deductible Dogs

140. Division 7A

141. Personal Services Income (PSI)

142. Unit Trust

143. Thin Capitalisation

144. Accrued Expenses

145. ‘Bucket Companies’

146. Partnership of Discretionary Trusts

147. Transferring Business Premises into a SMSF

148. Service Arrangement

149. Employing the Family

150. Bad Debts

151. Business Entity Changes

152. West State Super & Gold State Super Contributions

153. Corporate Box

154. Employee Remuneration Trusts

155. Varying Partners Distributions

156. Endorsement Income

157. Long Service Leave Awards

158. Antique, Veteran or Vintage Car

159. Non-Geared Unit Trust

160. Health Coaching, Lifestyle & Weight Loss

161. Company Shares Owned by Family Trust

162. Super Contributions from Downsizing

163. Private Investment Companies

164. Utilise Business Goodwill to Pay Out Your Private Mortgage

165. Purchase a Farm in Your SMSF

166. Wineries and the Wine Makers WET Rebate

167. Holding Companies

168. SMSF’s Investing in Non-Controlled Entities

169. Structured Settlement Contributions

170. First Home Saver Scheme

171. Utilise the $1.445 CGT Cap

172. Start a Pension in a SMSF (or Zero Tax Retirement)

173. 5 Year Catch-Up Super Contributions

174. Gifts to Clients, Suppliers, and Contractors

175. Junior Mineral Exploration Tax Credit

176. Tax Incentives for Early Stage Investors

177. Migrant Language Training

178. Trust Cloning Using the SBRR

179. Boats & Yachts

180. 60% CGT Discount for Affordable Housing Investments

181. Avoid the Luxury Car Tax

182. Change Bad Debt to Good Debt

183. Mortgage Offset Accounts

184. Releasing Trapped Franking Credits

185. Establish a Foreign Company

186. Owning a Racehorse

187. Overseas Employees Education of Children

188. Remote Area Housing Benefit

189. Accessing Surplus Franking Accounts

190. Maximising the $1.6 million Pension Cap

191. Holiday Working Spaces

192. SMSF Carrying on a Business

193. Income Splitting

194. Pooled Development Funds

195. Business Trips and Adding More Fun

196. Exempt Childcare Benefits

197. Amend Prior Year Tax Returns

198. Child Maintenance Trust

199. Taxi Travel

200. Establish a Not-For-Profit Company

201. Transferring a Life Interest in BRP into a SMSF

Acknowledgments

About the Author

 

Introduction

This book details 201 tax saving strategies and ideas, that if implemented will save you tax. It doesn’t matter whether you are an employee, investor, or business owner; there are tax strategies that may apply to your circumstances.

Some tax strategies only apply to one category of taxpayers, such as employees, or investors, or business owners. Other are very versatile and equally useful to employees, investors, and business owners.

Often taxpayers are unaware of all the tax saving strategies that are available. This is understandable as the Australian taxation system is extremely complicated and ever changing. Up to date information is the key to ensuring taxpayers are not paying more tax than necessary.

The focus of this book is to educate and enlighten taxpayers about 201 selected tax saving strategies that are legally available. Taxpayers should only pay the exact amount of tax they are legally required too and not a dollar more.

Before implementing any tax saving strategies taxpayers should seek professional tax advice from a Registered Tax Agent.

1.

Salary Packaging Private Motor Vehicles

When a motor vehicle is used 100% for private purposes there is normally no tax deduction available on the expenditure.

With this strategy an employee can generate annual tax savings of $2,500 – $3,000 pa by salary packaging their private motor vehicle with their employer. The tax savings result from the motor vehicle tax concessions available under the Fringe Benefits Tax Act and also the GST savings on the motor vehicle expenses incurred.

This will involve the employer owning or leasing the motor vehicle and providing the motor vehicle to the employee as a fringe benefit as part of the employee’s overall salary package. The employer ensures the employee’s overall salary package doesn’t increase by reducing the employee’s cash salary paid to cover the motor vehicle and fringe benefits tax costs.

The annual tax savings to an employee will depend on the motor vehicle cost and annual operating expenses (fuel, registration, insurance, repairs and maintenance), but will be $2,500 – $3,000 per annum where:

 

Subject to an employer’s approval, this strategy enables an employee to salary package more than one motor vehicle at a time. As such, it should also be used to salary package a spouse or children’s motor vehicles if they are used for private purposes only.

2.

Home Office Occupancy Expenses

If a taxpayer’s home has the character of a ‘place of business’ then occupancy costs like interest expenses, rates, rent, maintenance, etc., may be tax deductible.

The actual home office occupancy expenses claimed will be a percentage of the total household occupancy expenses. The percentage claimed is calculated as the home office floor area (in metres squared) divided by the total house floor area. Home offices normally average 5-10% of the total house floor area.

This is to be contrasted with the normal situation for employees who use their home office for convenience and as such are only allowed deductions for home office running costs (like electricity and depreciation of home office furniture), and not occupancy costs.

In TR 93/30 the ATO states a home will have the character of a place of business in the following two situations:

 

Factors that will evidence this include:

 

3.

Novated Motor Vehicle Leases

A novated lease is a type of motor vehicle lease common in Australia that allows a business to lease a motor vehicle on behalf of an employee, with the responsibility for the lease lying with the employee and the lease payments being made from the employee’s pre-tax income.

Novated leases of motor vehicles enable employers to provide employees with significant tax savings at no extra cost to the employer. Employers are often happy to do this as it improves employee recruitment, satisfaction and motivation. The employee saves approximately $3,000 per year in income tax and also the GST on the motor vehicle purchase and on-going motor vehicle operating costs.

Under a novated lease arrangement, the employer takes over the lessee’s rights and obligations under the lease agreement (per the deed of novation between the employer, finance company, and lessee). The lessee is usually the employee, or an associate of the employee.

Under standard novated leases the lease obligations are transferred back to the lessee when the employee ceases employment with the employer or the lease terminates. This enables employees changing jobs to take their novated lease (including the vehicle) to their new employer. The ‘old’ employer is left with no obligations and commitments when the employee leaves their employment (for whatever reason).

With a novated lease the employee salary sacrifices part of their salary in return for the benefit of a motor vehicle equal to that amount. The novated lease payments, motor vehicle operating costs and Fringe Benefits Tax payable are deducted from the employee’s pre-tax earnings, and PAYG tax is calculated on the reduce salary.

4.

Transporting Heavy or Bulky Equipment

Some employees need to transport heavy or bulky equipment to and from their work place each day to perform their job. This is often the case with engineers, plumbers, electricians, builders, mechanics, defence force members, musicians and medical practitioners, etc.

The general rule is that an employee’s travel to and from work is private and non-deductible. This applies even if they need to transport tools to work.

An exception to this rule is where the home to work travel involves the transportation of heavy or bulky equipment.

For the employee’s home to work travel to be deductible it must meet three requirements:

 

An example of this would be Mathew the electrician. His employer does not supply a secure storage area at his workplace for his tools so Mathew is required to transport his bulky electrical tools to and from work every day. Mathew is entitled to claim a deduction for the expenses he incurs to transport the electrical tools between his home and work.

5.

Jointly Owned Motor Vehicle

Most spouses jointly own their assets, including all their motor vehicles. This is the case even though the motor vehicle registration departments of several State Governments only allow jointly owned motor vehicles to be registered in the name of one spouse.

The ATO have confirmed that they consider a taxpayer to be the owner or lessee of a motor vehicle and eligible to claim expenses where a family or private arrangement made them the owner or lessee even though they were not the registered owner.

This means where a husband and wife jointly own a motor vehicle and they both separately use that vehicle for an income producing purpose (work or a business), then each taxpayer will be entitled to claim a deduction using the cents per kilometre method (up to 5,000 work or business kilometres). This is assuming they each actually did travel 5,000 work or business kilometres.

Additional tax deductions are potentially available if a husband and wife jointly owned two motor vehicles. If both spouses used each vehicle to travel 5,000 work or business-related kilometres then each spouse would be claiming a deduction for 10,000 kilometres. That is, claiming a total of 20,000 business kilometres between the two spouses (assuming they actually did travel 20,000 work or business kilometres). The ATO allows a deduction of $0.66 per kilometre travelled, so for 20,000 kilometres the total deduction would be $13,200.

6.

Travel Between Two Unrelated Places of Employment

Employees who use their motor vehicle for work related travel are entitled to a tax deduction for the costs incurred. The two methods available for calculating the deduction are the ‘cents per kilometre’ method, or the ‘log book’ method.

Under the ‘cents per kilometre method’, a set rate is applied to each work or business kilometre the motor vehicle travelled, up to a maximum of 5,000 business kilometres per year. For example, the set rate for 2018 is $0.66 cents per kilometre. The advantage of this method is that the taxpayer does not require written evidence of their motor vehicle expenses, only records to make a reasonable estimate of business kilometres travelled during the year.

Under the ‘log book’ method the taxpayer estimates the work or business use percentage of their motor vehicle and applies it to the allowable motor vehicle expenses incurred during the income year. The business use percentage is worked out from log books and odometer records. The log book must cover a 12-week continuous period and record all the work or business-related trips and kilometres travelled. All motor vehicle expenses, except for fuel and oil, must be evidenced by receipts.

A deduction is generally allowed for the cost of travelling directly between two unrelated places of work where the taxpayer does not reside at either workplace. For example, an employee travelling to an office, doing some work, before travelling to a second branch office, would be allowed a deduction for the travel between the two offices. The employee’s travel to the first office and from the second office home again, would still be private non-deductible travel.

7.

‘Double Dip’ For Employees Claiming Motor Vehicle Expenses Reimbursed by Their Employer

Employees can have their work-related motor vehicle expenses paid or reimbursed by their employer. They can also claim a deduction under the ‘cents per kilometre’ method, without that deduction being reduced because of their employer having paid or reimbursed those expenses.

This ‘double dipping’ is a very unusual situation as section 51AH of the ITAA 1936 normally prevents a deduction being claimed for reimbursed expenses. This is logical and prevents double deductions being claimed for the one expense.

However, in this case an extra deduction (or double dip) is possible under subdivision 28-C of the ITAA 1997 using the cents per kilometre method. The deduction allowed under these provisions is not an actual loss or outgoing incurred by the taxpayer, but rather a deemed motor vehicle expense deduction.

Below is an example of the savings in practice:

Jack is a sales consultant who uses his motor vehicle for visiting clients. He keeps a valid log book showing 60% work use for his motor vehicle and his motor vehicle expenses which includes depreciation, fuel, insurance, registration, and repairs total $8,000 for the year. Jack’s employer reimburses him $4,800 for his actual work-related motor vehicle expenses incurred.

This strategy allows Jack to also ‘double dip’ and claim a tax deduction of $3,300 in his personal tax return. Jack’s deduction is calculated by multiplying 5,000 business kilometres travelled for the year by the ATO allowed cents per kilometre deduction rate of $0.66 (This calculation is based on Jack doing at least 5,000 business km during the year in his motor vehicle).

8.

Overtime Meal Expenses

Generally, meals, snacks and drinks bought and consumed while working are considered to be private and non- deductible.

An exception to this rule applies where an employee is paid an overtime meal allowance under an industrial award. In this situation the employee is taxed on the overtime meal allowance received and allowed a deduction for the overtime meal expenses incurred (subject to written receipts).

If an overtime meal allowance is received and not folded into normal salary then an overtime meal deduction can be claimed without substantiation subject to:

 

There are a couple of traps. Firstly, the meal allowance must be paid under an industrial award. It cannot just be a meal allowance paid by an employer. Secondly, if the employee wants to claim more than the Commissioner’s reasonable amount of $30.05 per meal, they need to substantiate the full amount of the deduction with receipts.

9.

Relocation Expenses

Relocation costs can be expensive and are often $10,000 – $20,000. Employees who relocate for work purposes however, are not entitled to a tax deduction for the relocation costs and airfares they incur, as these expenses are deemed private.

How is it possible to make these relocation expenses tax deductible to the employee?

Under the Fringe Benefits Tax Act there is an exemption from fringe benefits tax for an employer who either pays or reimburses an employee’s relocation costs. In addition, the employer gets a tax deduction for the relocation costs paid and can claim the GST input tax credits back on the payment as well.

For an employee to effectively make their relocation expenses tax deductible they need to salary sacrifice the relocation costs with their employer. This involves the employee having their gross annual wage reduced by the amount of relocation costs. The employer then either pays the relocation costs directly or reimburses the employee for the relocation costs they have already paid.

An example in practice: Jill relocates from Perth to Darwin for a new job and pays $11,000 relocation costs to transport her furniture. Once starting work in Port Hedland Jill salary sacrifices the $11,000 of expenses with her employer. The employer reduces Jill’s gross wage for the first month by $10,000, and not $11,000, as the employer claims back the $1,000 GST input tax credits on the $11,000 relocation expenses reimbursement. The employer then reimburses Jill the $11,000 relocation costs she has incurred. This results in no overall cost to the employer. Jill’s tax saving is $5,170 (which is the tax she would have normally paid on the $11,000 of salary income).

10.

Home to Work Travel

Normally home to work travel for an employee is not tax deductible as it is deemed private travel.

It is possible for an employer to make the employee’s home to work travel tax deductible for the employer if the following two requirements are met:

 

If the above two requirements are met the employer can claim a 100% tax deduction for the motor vehicle expenses incurred and also have no fringe benefits tax liability. In addition, this motor vehicle benefit is tax free to the employee as well.

An example of the tax savings in practice:

Tom operates an accounting practice and uses the company motor vehicle to visit clients as well as travel to and from work.

As the company motor vehicle is a four-door utility, Tom’s travel from home to the office and return is deemed business use and tax deductible. The actual tax savings by making the travel to and from home tax deductible will depend on the distances travelled daily to work of course, but should be several thousand dollars per year.

11.

Change from Employee to Contractor

Changing from employee to contractor (business) has the benefit of making some private expenses tax deductible. Expenses such as motor vehicle, home office, travel, etc, may become deductible. A contractor’s total expenses are normally maximised by utilising the PSI Entity strategy which may make private motor vehicle expenses and living away from home accommodation and meals deductible.