May 4, 2022
Donations, Gifts & Tax Deductions

Giving and donating is always a nice feeling, but what do you know about tax deductions as they relate to these things? Even though the rules seem relatively simple, there can be some complexity. Between crowdfunding pages, raffle tickets, and adding in the odd $2 donation in your weekly grocery shop there’s lots of places to give, so it’s worth understanding how the tax deduction part of giving works …

Let’s start with the four most important conditions of tax deductibility

To claim a tax deduction for a donation or gift, it must meet all four of the following conditions:

  1. The gift or donation must be made to aDeductible Gift Recipient (DGR) – more on this below
  2. It must truly be a gift or donation – you are voluntarily transferring money or property without receiving any material benefit or advantage in return (so those RSL Art Union tickets unfortunately lose out here)
  3. The gift or donation must be of money or property
  4. It must comply with any relevant gift conditions– for some DGRs, there are extra laws that affect the types of deductible gifts they receive.

What is a DGR?

A Deductible Gift Recipient is an organisation or fund that has registered to receive tax deductible gifts. Not all charities are DGRs so proceed with caution when donating to crowdfunding campaigns such as the popular GoFund Me campaigns. These websites and certainly not the folks listing on them asking for donations, are not DGRs (or run by DGRs) and as such donations made via these means are not tax deductible.

If you ever need to check out the DGR status of an organisation you can do a search here: ABNLook-up: Deductible gift recipients.

Cash donations

Provided your gift or donation meets the above four tests, you can claim a tax deduction for the value of the cash provided it was for $2or more. If you receive a small token (such as a sticker, pin or wristband)this is still okay as these are generally not of a material value.

  • Bucket collections – anything over $2 to a bucket collection (such as collections conducted by an approved organisation for natural disaster victims) is deductible. IMPORTANT: You can claim a tax deduction up to $10 without a receipt.
  • Supermarket collections – if you’ve ever included a little extra on your grocery shop for a supermarket accepting donations at the register then these will generally be tax deductible. Provided it meets the four conditions above and you have a receipt.

The receipt is generally the key with donations (and most any deduction in fact). If your donation meets the above four tests and it’s of a sizeable amount, you’ll want to make sure there’s a receipt on the other side if you’re looking to claim it as a deduction.

What isn’t tax deductible?

A good rule to follow is that you can’t claim gifts or donations that provide you with a personal benefit, such as:

  • Raffle or art union tickets
  • The cost of attending fundraising dinners(however some different rules can apply here, so if you’re ever unsure we suggest you clarify the DGR status with us if you’ll be considering claiming the cost as a deduction)
  • Club membership fees
  • Payments to school building funds made in return for a benefit or advantage
  • Gifts to family and friends regardless of the reason
  • Donations made under a salary sacrifice arrangement
  • Donations made under a will

 

For the most part, the rules are simple enough to follow but for larger donations or any grey areas it’s best you speak with one of theAttune team to ensure the outcome works for your situation. For more info, callus on 1300 866 113 or send us an email.

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May 2, 2022
Tax Implications of Living In Your Investment Property

After a turbulent few years in the property market thanks to COVID-19 related downs then ups, there’s been some shifts in the way people have structured and used their homes and investment properties.

In fact, it’s gone both ways – for some, their changing fortune has led them to consider converting their homes into investment properties, moving elsewhere, and paying rent. On the flip side, many investors who were hit hard by some of the tougher times converted rental properties into their main place of residence to save money and protect themselves from future crises.

What are the tax implications for these people? Well, if this is you, what follows is designed to give you an overview of what to expect before speaking to us for the specifics.

Can I live in my investment property?

Yes, of course you can, but there are some considerations.As a start, ensure you keep clear and well documented records of move-in date so you can inform the ATO as part of your end of year tax return.

We’d also suggest obtaining a valuation of the property at the time you move in, if there are or have been variations in the value of your property this will help mitigate more hefty tax implications.

 

What does it mean for Capital Gains Tax (CGT)?

It can be possible to claim CGT exemptions for the period you’re living in your investment property, but your ability to do so depends on a raft of factors starting with how long you’re using the property as your main residence. Don’t dive into the process without understanding what your CGT situation is completely – we can help with this.

 

Considering renting out part of your property?

If your property is setup in a way that allows you to rent a room or suite there’s a chance you can claim some tax deductions. The claimable amount is dependent on how much floor space (by square metre) you rent out in proportion to the rest of the property you’re claiming as personal use.

 

Do the same rules apply for Airbnb temporary rentals?

Pretty much. There are differences to what you’d be eligible to claim or pay in tax if you’re temporarily renting out all or part of your main residence, but the concepts remain similar –floor space rented, period of rental, income from the rental are all factors.

 

It’s well worth getting specific advice for your scenario

What you see here is just the tip of the iceberg, designed to help you understand that there’s complexity and many variables involved with moving into an investment property. That’s why we suggest speaking to a tax professional first. Tax implications could be harsher than you might expect and it’s worth assessing the outcome with a clear strategy regardless of why or how long you plan to stay in your investment property.

If you’re looking at changing the status of your investment property or indeed renting some or all of your main residence, speak with theAttune team today on 1300 866 113 or send us an email for sound, strategic advice that could save you major headaches (and money) later.

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April 21, 2022
The Federal Budget, Numbers and Notables

Is it just like your household budget? Now we are a little over a month on from the latest Budget released by the Morrison government (and closing in on an election), we thought we’d take a lighter look at the Federal Budget, now and in the past. 

What is the Federal Budget?

The Federal Budget is basically the government’s way of laying down their policy priorities each year. It’s a big deal usually as it sets out how they will spend money (to keep their election promises) while also forecasting the state of the economy over the next four years with considerations in changes to legislation, taxation and the like. Although it’s an important part of the political landscape in our country, it seems we have all come to tolerate the fair serving of political theatre that comes with it.

Maybe theatre is a bit rich but, we should remember, the Budget is the treasurer’s chance to take centre stage without the prime minister getting in their way. The treasurer delivers the speech live – Keating pioneered this in 1984 and it has since stuck – followed by a series of post-budget interviews. It becomes a bit of a media circus. The opposition then attempts to gather media attention for themselves with their own “budget in reply” speech two days later.

Not all budgets are created equal!

Here’s some moments worth remembering …

The one pounder:

In 1941 the federal opposition (led by John Curtin), moved to reduce the budget by 1 pound (!) and convinced the independent MPs to side with him. The result was the House rejecting the government’s plans in an effective vote of no confidence (over 1 pound!) and Curtin was sworn in as prime minister four days later.

Wiped one year on

During his second stint as treasurer, Arthur Fadden had a bolt of light in the middle of the night for a wool tax. The closest thing he could grab to document his idea was toilet paper. The tax was included in the1950 budget but repealed one year later thanks to how unpopular it was.

“Lies, Lies, Lies!”

You might recall hearing this yelled by politicians over the years, but it’s most famously documented as being a headline in a 1979 edition of the Illawarra Mercury newspaper. The headline came after then treasurer, John Howard, broke his promise to end a short-term tax levy during that year’s budget announcement. The catch cry, “Lies, lies, lies!” was then repeated constantly by the Labor opposition during debates that followed. It’s semi-stuck and can be heard now and then echoing the halls of parliament house.

Leaky in ’80

Big time political journalist Laurie Oakes was leaked JohnHoward’s entire 1980 budget before it was delivered. Oakes revealed in 2017that a contact handed him Howard’s budget speech in a car park, giving him 15minutes to “gabble the whole lot into a tape recorder”. As you can imagine, this left room for Oakes to build quite a budget story for the media by the time the announcement came around.

All it takes is a few words

To help illustrate the “political theatre” point, here’s are minder of some killer one liners that’ve come from budget announcements.

Take Paul Keating’s triumphant 1988 budget announcement that boasted a healthy surplus while being the first to be delivered in the newParliament House. He declared his budget was “Bringing home the bacon” after years of tough economic reform.

Remember the baby bonus? The Baby Bonus Scheme initially granted $2,500 in tax cuts per year for parents of newborns, an amount which was amended to lump-sum payments of $3,000from 1 July 2004. Well, in 2004 Peter Costello introduced it, urgingAustralian’s to “have one for mum, one for dad and one for the country”!  

Amongst everything, it’s important to remember that although the budget is a serious tool with serious outcomes for our country, there is fun to be had when you start to look through its history. We encourage you to take a light look at your own budget, it could just help you look at it in away that inspires some kind of change you’d otherwise not have thought of.

 

If you’re looking for advice or strategy for your personal or business budget, the Attune team is perfectly placed to help you build a roadmap to reach your financial goals. Give us a call on  1300 866 113 or send us an email to begin the conversation.

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April 14, 2022
The ATO vs TrustArrangements for Adult Children

The ATO is taking a hard look at distributions of trust income to adult children, particularly where the distributions have been made to take advantage of lower marginal tax rates, yet some other person obtained the actual benefit of that income. The other person may be other beneficiaries like a parent or parents.

The ATO are doing this through their application of section 100A, for which they have released a number of recentDraft Rulings and Guidance – if you’d like to get technical this might be worth a look.

They have introduced a “traffic light” system for various scenarios which range from low to high risk depending on the circumstances of each case. Clearly, the green zone is low risk, the red zone is high risk and the blue zone is in between.

Whilst these announcements are not new law, extreme care must be taken when considering how trust distributions should be made each year, and perhaps as importantly, whether any past strategies may need to be reviewed.

 

What is Section 100A?

Section 100A is an anti-avoidance provision and it is what the ATO is using to come after these distributions.

When section 100A applies, the trustee is taxed on the trust income at the top marginal rate – currently 47%, and due to the nature of section 100A, even harsher penalties and interest are generally applied.

 

How does this apply to family trust distributions?

Although s100A was originally designed to prevent more historically aggressive tax schemes such as dividend stripping schemes, the ATO have advised that it can also apply to more common family trust distribution arrangements that had been acceptable practice for many years.

 

Will the ATO be coming to review my past distributions?

The answer is; it depends. The ATO have announced that they will generally not come after previous arrangements unless it is outside the“green zone” but they have left it pretty open, and unfortunately, rather vague.

There is a (potentially common) arrangement that is subject to specific Taxpayer Alert TA 2022/1, where:

  • Trust income is distributed to adult children on lower tax rates;
  • Mum and Dad have the benefit of that trust income; and
  • The adult children are never physically paid that trust income because their parents say the adult children have to pay back their parents for the cost of raising them, or it represents their share of family costs.

The ATO have flagged that this type of arrangement falls within the red zone and they will conduct further analysis of the facts and cases as a matter of priority.

 

How far will the ATO go looking?

There is no time limit for the ATO to raise a Section 100A assessment, however, they have advised they will generally not go past 2014 in assessing if there is an issue.

 

What should I do next?

First of all, make sure you take extreme care with your trust distributions for the upcoming 2022 financial year – your advisors atAttune will be able to assist with this to ensure you are compliant within the application of section 100A.

Secondly, although the ATO has announced items in the red and blue zones may warrant an ATO review, cases will be assessed on their facts meaning not all will be reviewed. If you have any concerns over past or present distribution arrangements, please contact our team to discuss how this may affect you. Call us on 1300 866 113 or send us an email.

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