Useful Knowledge

  1. Resident personal tax rates for the 2014/15 year
    The following rates for 2014-15 apply from 1 July 2014.

    Taxable income Tax on this income
    0 – $18,200 Nil
    $18,201 – $37,000 19c for each $1 over $18,200
    $37,001 – $80,000 $3,572 plus 32.5c for each $1 over $37,000
    $80,001 – $180,000 $17,547 plus 37c for each $1 over $80,000
    $180,001 and over $54,547 plus 45c for each $1 over $180,000

    The above rates do not include the Medicare levy of 2%.

  2. Non Resident personal tax rates for the 2014/15 year.
    The following rates for 2014–15 apply from 1 July 2014.Foreign residents are not required to pay the Medicare levy.

    Taxable income Tax on this income
    0 – $80,000 32.5c for each $1
    $80,001 – $180,000 $26,000 plus 37c for each $1 over $80,000
    $180,001 and over $63,000 plus 45c for each $1 over $180,000
  3. Increase in the Medicare Levy
    From July 1, 2014, the Medicare levy will increase from 1.5% to 2%. The funds raised by this additional levy will be directed to fund the National Disability Insurance Scheme. The proposed increase to the levy will have consequential impacts on other tax rates.
  4. FBT
    Fringe benefits tax (FBT) will increase to 47% instead of 46.5%
  5. Year-end planning
    The end of the financial year is fast approaching and it’s time to start planning to prepare for your 2014 Income Tax Return. Now is a good time to start thinking about your tax affairs. Some things you could look at are:

    • Make sure you gather all your receipts to claim work-related expenses that exceed $300;
    • Consider whether any tax offsets are available to you – do you have large medical expenses you could claim an offset for? Are you entitled to the Low Income Tax Offset? Are there any other tax offsets for dependents you might be entitled to?
    • Making additional contributions to your superfund – should you top up super contributions this year?
    • Think about whether you had planned to make any donations to deductible gift recipients and making those donations (and getting a receipt for them) before the financial year ends; and
    • If you have a rental property, think about what expenses you might be able to claim against the rental income you have earned.
  6. Seven red flags for the ATO which your small business should try to avoid:
    • Business sales
      The sales activity of a small business can attract a range of capital gains tax concessions, but strict qualification rules apply. The ATO examines these transactions closely. There are a lot of cases each year where the ATO takes people to court arguing that they don’t meet the small business definition. If you’ve got those in your tax return, make sure you’ve taken some care to get the calculations right and make sure you genuinely qualify.
    • Loans to shareholders
      This is one of the biggest red flags. Companies have to follow very specific rules and obligations if they lend money to a shareholder. The ATO wants to stop business owners avoiding tax by “borrowing” money from their company, so will want proof that any loan is genuine, with a loan document and regular interest and principle payments. Otherwise they will treat the loan as a dividend and collect tax on it.
    • Cash transactions
      The ATO says that in 2013-14, it will focus on unreported cash transactions in small businesses with a turnover of less than $2 million. One strategy the ATO has is to match a business’ tax return against benchmarks for that industry, as well as cross-checking records, such as the amount of raw materials a business purchased. It will be paying particular attention to cafes and plasterers.
    • Fuel tax credits
      Many businesses are entitled to credits for fuel tax for machinery and heavy vehicles, but the ATO says “incorrect or ineligible fuel tax credit claims continue to be made as a result of taxpayers misunderstanding their entitlements or poor record keeping”. It warns that serious breaches will result in prosecution.
    • Late payments
      The ATO will take notice if a taxpayer lodges several late company returns or several late Business Activity Statements all at the same time. If you lodge them all at the same time you can expect that they’re probably going to be a little more closely vetted than if you were lodging returns on time. Also, businesses need to ensure that the annual total of the BAS returns matches the annual sale number on the tax return. “Obviously if there’s a discrepancy in those numbers, that indicates a problem. Any discrepancies should be explored before you lodge.
    • Home office expenses
      Getting a tax deduction for part of the home phone and power is an attractive idea, but claims for home office expenses will also catch the eye of the ATO. There are pretty strict rules around home offices and the deductions you can claim for them. There are different rules that apply when you actually carry on your business from home, such that your home is your principal place of business, versus the situation whereby you merely use your home for convenience and do some work from home.
      For the second category, taxpayers need to substantiate their claim by keeping a diary for a month of the work they do at home to demonstrate their work patterns.
    • Business and personal bank accounts
      Many small business owners have a single bank account for personal and business use; this is a red flag to the ATO and should be avoided. Ensure you clearly separate business and personal expenses.