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Working holiday makers (backpackers)

Working holiday makers (backpackers)

Commissioner clarifies current practices whilst awaiting new laws: generally non-resident as they move around and 32.5% tax applies from $1

13 Dec 2016 Written by John Morgan
With a number of media reports circulating in relation to the tax treatment for working holiday makers and the tax that they pay, the ATO has sought to make clear the tax arrangements in place.
Tax Commissioner Chris Jordan said the amount of tax that a working holiday maker may pay will depend on their residency status for tax purposes, and in this regard, the ATO considers the individual circumstances that apply to each working holiday maker.
Mr Jordan said the reality is that the ATO sees that most working holiday makers are transient – they move around and do not establish residency in Australia during their stay. The ATO considers that most working holiday makers are non-residents due to their pattern of working and holidaying while in Australia. Therefore, as a non-resident for tax purposes, they will be taxed only on their Australian-sourced income, such as money they earn working in Australia, and they will commence paying tax on the first dollar of income they earn – at 32.5c in the dollar.
If the Bills currently before Parliament are not passed, the Commissioner said the ATO will continue to apply the current law.
[Those Bills are: Treasury Laws Amendment (Working Holiday Maker Reform) Bill 2016; Income Tax Rates Amendment (Working Holiday Maker Reform) Bill 2016; Passenger Movement Charge Amendment Bill 2016; and Superannuation (Departing Australia Superannuation Payments Tax) Amendment Bill 2016.]

Contact Kingston & Knight Accountants today on 1800 283 481 to learn more about our Melbourne accounting services, or email us at admin@kingstonknight.com.au.

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SMSF Auditor Melbourne

SMSF Auditor Melbourne FAQ’s

Acceptance and continuance

Who can audit an SMSF?

Before 1 July 2013
SMSF audits must be carried out by approved auditors. An auditor is an individual who is currently:
• Registered as a company auditor; or
• A CPA Australia member; or
• An Institute of Chartered Accountants in Australia member; or
• An Institute of Public Accountants member; or
• An Association of Taxation and Management Accountants member or fellow; or
• A fellow of the National Tax and Accountants Association Ltd; or
• An SMSF specialist auditor from the SMSF Professionals Association of Australia Ltd; or
• The Commonwealth Auditor-General, or that of a state or territory.

From 1 July 2013
SMSF audits must be carried out by ASIC registered auditors, also known as approved SMSF auditors.

Competency requirements

A list of competency requirements for SMSF auditors was developed by CPA Australia as part of a joint initiative carried out with the regulator and other professional accounting bodies. These requirements were created as a result of market growth in the area of SMSFs, they require that SMSF auditors:
• Possess a practicing certificate issued by a professional accounting body such as the Institute of Chartered Accountants in Australia, CPA Australia, or the Institute of Public Accountants;
• Be covered by professional indemnity insurance;
• Meet the ongoing professional development requirements;
• If there are others undertaking work on their behalf, these individuals must have appropriate experience and knowledge and are to be supervised when conducting audits;

In addition to the above, an SMSF auditor must demonstrate competency in these areas:
• Planning the engagement;
• Acceptance and retention of clients;
• Substantive procedures;
• Evaluating controls and testing these controls;
• Forming an audit opinion.

These competency requirements can be found on the CPA Australia website. They continue to apply to members in addition to the ASIC auditor registration requirements which came into effect on 1 July 2013.
ASIC has introduced its own competency standards for approved SMSF Auditors. These standards are largely based on the CPA Australia requirements. ASIC has been monitoring compliance with these standards since 1 July 2013.

Auditor independence
As part of the new registration regime for SMSF auditors, the SISR now prescribe APES110 to all approved SMSF auditors. APES 110 is the code of ethics for professional accountants. Approved SMSF Auditors will be required to declare on the SMSF independent auditors report that they are acting in compliance with these requirements.

The Auditing and Assurance Standards Board has provided guidance in the form of Appendix 6 of Guidance Statement GS 009 which relates to threats to independence within a SMSF. This Appendix lays out a variety of safeguards and scenarios available to auditors in a variety of given situations. Safeguards found within an SMSF may be limited as SMSFs are generally small entities with limited segregation of duties.

If an audit client is assisted in the preparation of accounting records or financial reports, a self-review threat may be created should these reports and records be subsequently audited by the firm which assisted in the preparation. If the firm’s staff happen to be making management decisions for the SMSF (which may be the case if the firm is providing administrative services to the SMSF), there are no safeguards to reduce the threat of self-review to an acceptably low level. The only option would be to withdraw from administration or audit engagement.

There are safeguards which apply when accounting services of a routine or mechanical nature are provided. Such services may include the posting of transactions and entries approved by the SMSF, or the preparation of the financial report based on a trial balance which has been provided by the SMSF. These safeguards include:
• Implementing procedures and policies which stop an individual providing such services from making managerial decisions for the SMSF.
• Making arrangements so that routine accounting services are not performed by a member of the auditing team.
• Requiring the source of data for accounting entries to be originated by the SMSF .
• Requiring underlying assumptions to be approved and originated by the SMSF.
• Obtaining the approval of the SMSF for any journal entries or other changes which may affect the financial report.
• Obtaining the acknowledgement of the SMSF of their responsibility for any accounting work performed by the firm.
• Disclosing the firm’s involvement in both engagements to the trustees.

Generally, a threat to independence is not created by providing taxation services to an SMSF which is also an audit client.

Timing of auditor appointment
Trustees are required to appoint an auditor at least 30 days prior to the date on which the auditor’s report is due.

Engagement letter
Audit engagement letters should clearly set out the reporting responsibilities of the auditor for both components of the audit.

If you require an SMSF Auditor Melbourne or an SMSF Accountant Accountant Melbourne contact Kingston & Knight today on (03) 9863 9779 or email us at admin@kingstonknight.com.au.

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SMSF Auditor Compliance

SMSF Auditor Compliance

Objective

There are relevant auditing standards which apply to SMSF compliance audits. These standards are:

    • * ASAE 3000 Assurance Engagements Other than Audits or Reviews of Historical Financial Information;

and

  • * ASAE 3100 Compliance Engagements.

Compliance audits are carried out in order to form an opinion relating to five crucial areas:

  • * That the fund meets the required definition of an SMSF and has elected to be a regulated fund as per SISA s17A.
  • * The sole purpose of the fund’s maintenance is to provide benefits to its members upon their retirement, or to their dependents should death occur before retirement.
  • * The trustees have an investment strategy which complies with the investment restrictions laid out in SISR. 4.09.
  • * The trustees comply with benefit and contribution payment standards and SISR 6.17/7.04.
  • * And that trustees are performing their required administrative obligations as according to SISR s103.

There is always the risk that a breach of the SIS Act and Requirements may not be detected by the auditor. For this reason, it is important that the audit procedures are thoroughly planned and designed to cover the entire financial period, as well as specific compliance tests relating to relevant SISA requirements.

The regulations set out in the SIS legislation represent a minimum set of audit requirements for compliance. Auditors are able to expand the scope of an audit as they see fit (perhaps based on risk and other factors), but the audit must meet these minimum requirements in order to comply. An SMSF’s trustees should be consulted when determining the scope of an audit.Reporting obligations for the financial statement and compliance audits

Under the SISA, an SMSF auditor is required to:

  • * Provide an auditor’s report to the trustees detailing the SMSF’s operations for the year. The report must be in an approved form.
  • * An auditor will be required to submit a written report to a trustee if that auditor forms the opinion that:
  • * Any contravention of the SISR or SISA may be occurring, have occurred, or be likely to occur in the course of the SMSF’s operations.
  • * The financial position of the SMSF is unsatisfactory, or is likely to become unsatisfactory.

An auditor will be required to submit a written report to the ATO if the auditor forms an opinion that:

  • * A contravention is likely to have occurred, be occurring, or occur in the future, and that this contravention is of the requirements of the SISR or SISA specified in the ACR by the ATO.
  • * The SMSF’s financial position is, or is about to become, unsatisfactory.

An audit contravention report should be used when submitting the above written report. These forms are available on the ATO website.

The ATO has also published an auditor checklist (Approved auditors and self-managed super funds – role and responsibilities as an approved auditor) which sets out the responsibilities of approved SMSF auditors according to the SIS Act and Regulations. It offers a concise guide to the way in which the ATO expects audits to be conducted.

If a fund was established on or after July 1 2008 and has committed a reportable contravention in its first 15 months of existence, the auditor must report the contravention to the ATO regardless of the amount involved. This ensures that new trustees become aware of their responsibilities and obligations at an early stage.

Management letter

Trustees are to be provided with a management letter which details the findings and implications of an audit on their fund.

A management letter should include details of any contraventions of the SISR or SISA as well as recommendations as to how these mistakes might be rectified by the trustees.

Any weaknesses in internal controls identified by the auditor should also be reported to the trustees (even if they are not necessarily breaches of the legislation or requirements) so that they are able to improve their administrative procedures and systems where required.

Contact Kingston & Knight Accountants today for an Melbourne SMSF Auditor and/or SMSF Accountant on (03) 9863 9779 or email us at admin@kingstonknight.com.au.

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SMSF Accountant Melbourne

SMSF Accountant Melbourne

Kingston & Knight offer a range of SMSF accountant Melbourne services.

What is an SMSF Accountant

In order to understand what an SMSF Accountant is, you must first understand what SMSF is. Self Managed Superannuation Fund, or more commonly known as a Self Managed Super Fund is a superannuation trust structure developed as a pension for members and their beneficiaries upon retirement.
What separates an SMSF from other super funds is that an SMSF member is also the trustee of the fund. These funds are formed with one to four members who have full control of how the fund is managed. As opposed to other super funds designed to manage large groups, and the interest of a large group, an SMSF can be managed to the specific needs of individual members.

With this type of a super fund, SMSF, there are two trustee structure options:

  • Corporate Trustee: In this structure a company will act as trustee, while each member will manage the SMSF as a director.
  • Individual Trustee: Each member of the SMSF is a trustee

Regardless if a corporate or individual trustee is used, the responsibility of the trustee will remain the same. Trustees are responsible for:

  • – Implementing, and maintaining an investment strategy for the fund;
  • – Administratively manage the fund. This will require strict adherence to requirements governing SMSF management, such as maintaining records, providing financial statements, completing tax records, and organizing an independent audit.

Trustees and Superannuation Laws

In addition to required actions of the trustee, superannuation laws require that trustees maintain a level of ethical standards commiserate with the industry, which include:

  • – Honest representation of actions and all matters concerning the fund;
  • – Acting responsibly, diligent, and in the best interest of the fund and all of the fund’s members;
  • – Ensuring fund assets are kept separate from the trustees’ personal assets;
  • – Inform and maintain full-disclosure of fund, fund activities, and changes to all members.

Due to the administrative requirements, it is common for trustees to seek advice, or consult, an SMSF specialist, often an accountant.

How Can an SMSF Accountant Melbourne Help Clients

SMSF accountants tend to be the primary source for advice on the development, implementation and management of super funds.

While an SMSF Accountant is often called upon for advice, it is important to note that, without an Australian Financial Services License (AFSL), an accountant cannot provide financial information and are significantly restricted on what advice they can provide. Advice which an SMSF accountant Melbourne can provide is:

Essentially, accounting services and advice can be provided, but the accountant cannot provide any financial advice or suggestions which may lead a trustee to act upon such information.
While the practice of offering financial advice along with accounting services has been abused in a variety of degrees since the inception of super funds, it is considered a highly unethical practice, and one in which both the SMSF accountant, and trustee or directors can face significant consequences financially, or on a personal level.

Considering the complications and requirements a trustee faces in managing a SMSF it is highly recommended to seek a SMSF accountant with accredited training and qualifications. It is also important to realize the importance on whether or not your SMSF accountant is qualified to offer financial advice in managing a super fund.

Consequences for Unlawful Trustee Actions

Consequences for a trustee not properly managing a fund are managed by the Australian Taxation Office and can result in education direction, administrative penalties required of trustees and directors, trustee disqualification, and up to civil and criminal penalties based on the degree of mismanagement.
An SMSF accountant is specially trained to assist in legally and ethically managing these funds.

Contact Kingston & Knight today for the most trusted and professional SMSF Accountant Melbourne services on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

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Small business tax accountant Melbourne

Small business tax accountant Melbourne

When considering whether or not to start a new business, there are a variety of taxation obligations which need to be considered. Most of the income generated by your business would be classed as assessable income – this means that it’s subject to tax and you will need to declare it on your tax return.

There are tax deductions which you can claim for most expenses incurred whilst running your business, but exceptions exist. You are not able to claim tax deductions for domestic or private purposes. Fines, entertainment, and some other specific expenses are also excluded.

Depending on the structure of your business, the rules for income and deduction will vary. Also taken into account is whether or not you hold/trade stock, and the nature of your expenses and income.

What to include as assessable income

Assessable income is any income that is subject to tax. Generally, to calculate the assessable income for your business, you are required to include any amounts you earn or receive in the ordinary course of operating your business, such as by providing services or selling stock.

Usually, you are also required to include the following:
– Commission income
– Amounts originating in isolated transactions outside the ordinary running of your business, where you intended to make a profit
– Amounts which exceed their written value if selling depreciating assets
– Compensation, including worker’s compensation or payments for trading stock losses, contract cancellations, or business interruptions
– Excise brewery refund
– Wine equalisation tax producer rebate
– Fuel tax credits, cleaner fuels grant and product stewardship (oil) benefit
– Franking credits (credits from company tax already paid), dividends on business investments
– Incentive payments, such as cash payment for a lease
– Grants, such as an amount received under the Apprenticeship Incentives Program
– If you are an Australian tax resident, income earned outside Australia
– Payments for selling know-how
– Interest on business investments and interest on early payment or overpayment of tax
– Hire changes and lease payments
– Net capital gains made from selling capital assets such as buildings or land
– Awards or prizes for your business, such as a money prize for winning a business competition in your region
– Personal services income (PSI) if PSI rules apply to you
– Recovered bad debts which you have received a tax deduction for
– Royalties, such as payments received for authorising other entities to use your intellectual property
– Rental income from properties owned by your business
– The value of goods you take from your business’s trading stock for your own personal use
– Subsidies for running a business
– The market value of transactions not involving money, including barter transactions
– The value of stock on hand at the year’s end if its value is greater than at the start of the year.

As exemplified by this list, you usually need to declare your gross proceeds and earnings, not just profit.

Amounts you should exclude when determining your assessable income

Some amounts, including the following, are not assessable. So you don’t need to include these when declaring your assessable income:
– Prizes that are not related to your business
– Amounts earned from a hobby
– Gifts or amounts given to you
– Goods and services tax (GST) collected by your business
– Any borrowed money
– Gambling or betting wins, unless your business is a gambling or betting business
– Payouts from personal income protection insurance policies (in most cases)

Record keeping and tax

As a business owner, you are legally required to keep complete and accurate records of all assessable income and any deductions you claim. Making misleading or false statements in these records or reports can result in the ATO doing the following:
– Applying penalties
– Determining your income based on other information, such as industry benchmarks, and issuing an amended tax assessment
– Prosecuting you in court

Keeping records for your business

You are required to keep records of all your business transactions, and these records must be stored by you in full for five years after the date on which the records were prepared or the relevant transaction completed.

These records are required in order to evaluate any expense claim you may make. Failing to keep records may result in an expense claim being denied or reduced, and can even result in penalties being applied by the ATO.

Examples of records which you are required to keep include:
– Cash register tapes
– Sales and expenses invoices
– Sales and expense receipts
– Credit card statements
– Bank account statements
– Bank deposit books and cheque butts
– Employee records, such as tax file number (TFN) declarations, time sheets, superannuation records, and wages books

The ATO has created a specific Record Keeping Evaluation Tool, which is hosted on their website. You can use this tool to identify what records you need to keep, and how to assess and/or improve your record keeping.

As well as those listed above, there are some other records which may need to be kept depending on the nature of your business. These income tax records also may need to be kept each financial year:
– Stocktake records
– Debtors and creditors lists
– Records of depreciating assets
– Records of any private use of business assets or purchases
– Records of assets for the purposes of assessing capital gains tax
– Motor vehicle expenses (includes logbooks)

All your financial records can be stored either in electronic or hard-copy form. But they all must be written in plain English and readily accessible. Bookkeepers often specialise in setting up book keeping systems for business records such as those required to be kept for tax purposes.

Accounting methods

The amount you should include as your assessable income depends on whether you account for income on a cash or accruals basis.

Cash basis

This refers to payments received during the year and does not require you to know when the work was done. If you are accounting on a cash basis, your assessable income only includes income which you have actually received during the income year.

Accruals basis

Accrual refers to income which has been earned during the year, even if the payment for this has not yet been received. If you account on an accruals basis, you need to include everything you earned during the income year, even if you are yet to receive payment.

Some people confuse these two assessable income accounting methods with the cash and non-cash goods and services (GST) accounting methods. Assessable income refers solely to income and has nothing to do with GST.

Concessions for small businesses

If your business has an aggregated annual turnover of less than $2 million, you may be able to receive certain concessions which reduce your taxable income. Aggregated annual turnover refers to the total sales made by your business and associated businesses during the financial year.

Examples of small business concessions include:
– Simpler trading stock rules
– CGT concessions
– Immediate deductions for prepaid expenses
– Simpler depreciation rules

Foreign income

As an Australian tax resident, you must include any income you have earned from foreign sources as part of your assessable income. Even if your income was already taxed in its country of origin, you must report it to the ATO. If your income has already been taxed, it may be eligible for Australian tax exemptions such as the foreign income tax offset.

You are required to convert foreign deductions and income into Australian dollars at the exchange rate which was current at the time the income or deductions were earned. You may also use an average exchange rate to convert your income as long as that rate is similar to the rate which applied at the time the income was earned.

Personal services income

Businesses involved in consulting or contracting may earn a type of income called personal service income (PSI). For these businesses, PSI tax rules apply and may alter the amounts included as assessable income, as well as eligible deductions.
The purpose of the PSI rules is to ensure that people earning PSI are taxed in a way which is comparable to employees performing similar roles to them. This ensures that they do not claim excessive deductions.

What is PSI?

PSI can be described as income which is generated through the application of your personal skills or efforts. Examples where PSI may be earned include:
– By professional practitioners operating a sole practice
– By consultants who provide personal expertise
– By professional entertainers and sportspeople
– Under contracts which are principally for your services or labour.

PSI generally does not include income earned by:
– Giving permission to use legal property
– Selling or supplying goods
– Through a business structure, such as a company or firm as opposed to a sole practitioner or trader working under a contract
– Using an asset, such as a truck, to generate income (these assets are known as income-producing assets)

Sole traders

Sole traders are subject to PSI rules which limit deductions they are able to claim. Examples of expenses where deductions are limited include:
– Mortgage interest, rent, rates, land tax on personal residences
– Car expenses for a spouse
– Super payments and wages for associates

Partnerships, companies, or trusts

These types of businesses are also limited in the deductions they can claim. If you operate one of these businesses, its income (minus some reductions) will be treated as your personal income, so you must report it on your tax return. In addition, your business will be subject to pay as you go (PAYG) obligations on your personal income.

Crowdfunding

Crowdfunding is a rapidly evolving industry and is subject to changing taxation regulations due to its growing popularity and value. Crowdfunding has different tax implications for individuals involved at different stages of the crowdfunding process.

Generally, there are three parties involved in crowdfunding arrangements:
– The promoter, who initiates the venture or project for which the funds are being sought
– The intermediary, which is the organisation or platform providing the crowdfunding services. These are usually websites
– Funders, individuals and entities who contribute money to the project

Each party can potentially have tax obligations as part of a crowdfunding arrangement.
If you happen to receive or earn money through crowdfunding, it may be assessed as taxable income. This means that you need to declare any money received via crowdfunding arrangements on your tax return.

If you are a small business owner it is highly advisable you utilise a qualified business accountant Melbourne, like Kingston and Knight Accountants to monitor your accounts. Contact us today on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

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Small business tax accountant

Small business tax accountant

Accounting Tax Deductions for Small Businesses

What You Can Claim and When

It is important you are aware of accounting tax deductions for small businesses if you run a business yourself. As a small business owner, you are able to claim a tax deduction for most business related expenses, so long as they are incurred during the running of your business and they relate directly to the earning of assessable income.

Generally, you are able to claim operating expenses for each income year (such as supplies and wages). Capital expenses, such as those to do with equipment, machinery, and buildings, are claimed over a longer time period. Expenses which meet these criteria are referred to as allowable deductions. You can claim these deductions when submitting your yearly tax return.

What you CAN Claim

As a business owner, you are only allowed to claim expenses which relate directly to your ability to earn assessable income.

For example, if you purchase/use an asset for both private and business purposes, you are only allowed to claim a tax deduction on the business-related portion of this expense. If an item or asset is only used for part of the year, you are required to reflect this when claiming any deduction.

What you CANNOT Claim

You are unable to claim any deduction for goods and services tax expenses if your business is eligible to claim these expenses as a GST credit.

Also, you are unable to claim:
• Domestic or private expenses, such as personal items or childcare fees
• Expenses which relate to your non-taxable income, such as income earned from a hobby
• Specifically non-deductible expenses, such as fines and entertainment.

Expenses you can Claim in the Year they are Incurred

These are generally referred to as ‘revenue expenses’. These are the expenses incurred during the everyday running of your business.

You are able to claim a tax deduction on most revenue expenses in the year they are incurred.

Examples include:
• Bank fees and charges
• Sponsorship and advertising costs
• Bad debts
• Business vehicle expenses
• Business travel expenses
• Clothing expenses (uniforms etc)
• Depreciating assets with a cost of less than $1000 if you are a small business
• Electricity expenses
• Education, professional or technical qualification expenses
• Home office expenses if your home is used as a business premises
• Fringe benefits
• Interest on money borrowed for employer super contributions, tax obligations, or to produce assessable income
• Legal expenses, such as those incurred through obtaining legal advice, borrowing money, defending future earnings or discharging a mortgage
• Luxury car lease expenses
• Losses from a previous year
• Parking fees
• Costs for running a business website, such as internet service provider fees, site maintenance, content updates etc
• Stationary expenses
• Phone expenses
• Public relations expenses
• Accountant and registered tax agent fees
• Rates on business premises
• Costs for the maintenance and repair of income-producing property
• Small-value items which cost $100 or less
• Wages, salaries, bonuses, and allowances
• Costs for outdoor clothing and equipment if your business activities require outdoor work
• Subscription costs for professional journals, business information services, newspapers and magazines
• Super contributions for employees and some contractors
• Tender costs, even when a tender is unsuccessful
• Union dues and periodical fees for professional or trade associations
• Transport and freight expenses
• Trading stock, including delivery charges
• Water expenses on business premises
• Tax related expenses such as having a bookkeeper prepare records, attending an ATO audit, appealing or objecting to your assessment, and obtaining tax advice for your business.

Expenses you can Claim Over Time

These are referred to as ‘capital expenses’.

Generally, a capital expense is either:

• An expense which is associated with establishing, enlarging, replacing, or improving the structure of your business
• The cost of an asset which has a relatively long lifespan (generally longer than one income year).

Usually, you are unable to claim the total capital expense in the year you paid for it. You generally make claims for any decline in value which that asset experiences each year.

You are able to ‘pool’ these capital assets and claim depreciation for the entire pool. For small businesses with assets worth less than $1000, the total amount can be claimed in the year it is incurred.

Capital assets usually depreciate in value over the time you use them. They can also be known as depreciating assets, and can include:
• Electrical tools
• Computers
• Plant and equipment
• Motor vehicles
• Furniture, curtains and carpet
• Fixtures and improvements on land, such as fences and buildings.

A set of rules applies across the variety of depreciating assets and capital expenditure. In summary, the life expectancy of an asset (in years) usually determines the number of years you must apportion the cost.

Some assets are excepted from these depreciation rules, usually these are assets which apply to construction costs relating to capital works. Capital works can include:
• Structural improvements
• Improvements to land, such as fences and buildings
• Environment protection earthworks

You are allowed to claim these capital works expenses at 4% per year over 25 years, or 2.5% per year for 40 years.

Other capital expenses

There are other business-related capital expenses for which you can claim deductions, as long as these expenses aren’t covered by any other part of tax law. An example could be the cost of setting up or dismantling a business. This is referred to as black hole expenditure. Black hole expenditure can be claimed over five years.

When is an expense is incurred?

An expense is generally incurred whenever you have a current legal obligation to pay for goods or services. Generally, an invoice is not necessary for an expense to have been incurred.

Claiming expenses paid in advance

These expenses are covered by a different set of rules. For small businesses (with an annual turnover of less than $2 million), the small business prepayments concession can be used to claim deductions on expenses prepaid for goods to be received in full within 12 months. This also applies if the 12-month period includes the following income year.

If you are a small business owner it is highly advisable you utilise a qualified Melbourne business accountant, like Kingston and Knight Accountants to monitor your accounts. Contact us today on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

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Small Business Entity Tax Concessions

Small Business Entity Tax Concessions

Simplified stock trading rules for small business

Small businesses are able to use a simplified set of trading stock rules as an alternative to those that apply to larger businesses.

If you choose to apply the simplified rules to your small business, you will only need to perform a stocktake, or account for any changes in the value of your stock under certain circumstances.

What is trading stock?

Trading stock can be anything which your business purchases, produces, acquires, or manufactures for the purpose of sale or exchange with customers. Livestock are included in this definition, but not beasts of burden or work animals used in a non-primary production setting.

The following are examples of things NOT included in the ATO’s definition of trading stock:
• DVDs owned by a DVD rental business that are used to earn income by rental or hire, rather than sale, manufacture, or exchange
• Supplies of spare parts being stored for maintenance or repairs of plant and equipment
• Consumable items used in the manufacture of trading stock, such as sandpaper and cleaning agents
• Timber, fruit, and standing or growing crops – only the harvested, picked, or felled form of these count as trading stock.

Valuation of trading stock

You are generally required to perform a stocktake to determine the value of any trading stock you have on hand at the end of the income year. This involves sorting through each physical item of stock and assigning a value to each of these items.

When assigning a value to items of stock, you can use one of these three methods to determine a value:
– Market selling value: Under this method, you are not allowed to use a reduced valuation if you are forced to sell stock. Market selling value means the current value of your stock as it would sell in the normal operation of your business.
– Cost price: A cost price is the monetary value of everything involved with bringing a stock item into existence. This can include customs duties, freight, materials and labour involved in manufacturing, and purchase price.
– Replacement value: This is the price of a similar item that you could reasonable use to replace your trading stock in the buying market on the last day of an income year.

You are able to change which method you use for performing stock valuation year to year, and you can even use different valuation methods for different stock items. The value of stock on hand at the beginning of the next income year must be equal to the value of stock on hand at the end of the last income year.

If you have applied the simplified stock trading rules to your business, you may be able to estimate the value of your stock rather than physically counting each item and performing a manual valuation.

You can use an estimate so long as there is a difference of $5000 or less between the actual value of your trading stock at the beginning of the income year and your reasonable estimate of the value of stock on hand at the end of the income year.

Under the simplified rules, you are required to either value your stock, or estimate the value of your stock each year, but you do not need to notify the ATO.

If you are entitled to a GST credit, you are not required to include GST in the value of your stock.

Immediate deductions for prepaid expenses

As a small business entity, you are able to claim immediate deductions on prepaid expenses so long as the payment involved covers a period of 12 months or less ending in the next income year.

There are a set of prepayment rules which determine how much you are able to claim as prepaid expenses in each income year. So long as these expenses meet certain requirements, you may be able to choose how you treat them in your tax return.

The following information relates to the general prepayment rules and special prepayment rules which apply for small businesses from 2007-08 onwards.

When these rules apply

The prepayment rules apply when you have incurred expenses for goods or services that were not fully provided in the same income year in which the expense was incurred.

An example of such an expense may be an advertisement paid for in a newspaper or magazine, set to run every fortnight for six months:
In this case, the prepayment rules will apply if you pay for the advertising in March, and it is set to appear from April 1 through to September 30 in the following income year.

If you pay for the advertising in July, and it is set to appear from August 1 through to January 31 of the same income year, the rules do not apply as the services have been provided within the same income year that the expense was incurred.

How prepaid expenses should be treated

You are generally required by the prepayment rules to separate deductions for prepaid expenses of $1000 or more over the income years in which the corresponding goods or services were provided. However, if you are a small business, you can choose to deduct the prepaid expenses immediately.

Two-year amendment period for reviewing an assessment

This applies from the date the ATO issued your assessment. Your tax return, or that of your business, is generally accepted at face value and is not subject to further adjustment. Your return may be subject to verification and review by the ATO, even after you have received a notice of assessment.

If a review shows inaccuracies or ambiguities in deductions, income, entitlements etc, the ATO will attempt to amend your assessment within a time period called the ‘period of review’. This amendment period is the time in which you can lodge objections to a review, and provide evidence to support your original tax return. In some circumstances, the Commissioner will accept late objections so long as they are applicable and/or relevant.

Speak to the Melbourne business accountant experts in small business entity tax concessions today from Kingston & Knight on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

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Self-Managed Super Funds (SMSF)

Kingston & Knight, along with our partners are specialists in all areas of Self-Managed Super Funds (SMSF), from managing annual audits, compliance paperwork, tax returns to investment strategy and advice.

Our Melbourne based team holds a membership with CPA Australia and have SMSF personnel who are committed to combining their expertise and assurance in assisting anyone who is considering setting up their own SMSF.

We offer a full range of SMSF services, including:
  • Self-Managed Super Fund Establishment
  • Investment Strategy
  • Compliance
  • Accounting and Taxation
  • Auditing

Contact Kingston & Knight Accountants today on 1800 283 481 to learn more about our Melbourne self-managed super fund (SMSF) accountant services, or email us at admin@kingstonknight.com.au.

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Self Managed Super fund

Self Managed Super Fund – Setting up an SMSF

When you’re finally ready to set up a self-managed super fund, there are a number of important steps to take to ensure that it is being set up correctly and that all legal guidelines are being adhered to. By taking the time to create and consider your own SMSF plan, you can safeguard your fund’s eligibility for tax concessions and for receiving contributions. Being organised and having a plan also makes your fund easier to manage in the long term, allowing you to avoid being overwhelmed by tasks and responsibilities.

Before creating a detailed SMSF plan customised to your own needs, it might be helpful to have a basic overview of some of the key steps involved.

Setting Up – Talk to the Professionals

Establishing a self-managed super fund is no easy task. More often than not, it is worth considering whether you need the assistance of one or a number of professionals. Retaining professionals that guide you through your SMSF establishment will increase your chances of securing a well-managed, financially efficient, fund. If you do choose to retain a professional just remember that, regardless of their professional input, it is still you that is ultimately responsible for making sure everything is done correctly.

Types of Professionals

Whilst none of the following SMSF professionals are required by law, they all have the capacity to help ensure that you are adhering to relevant legal standards. More than this, they are equipped with the financial knowledge necessary to maximize your fund’s economic benefit.

SMSF Accountant

An SMSF Accountant is a financial professional whose job it is to inspect, secure, or keep financial accounts. When setting up a self-managed super fund, a SMSF accountant can certify that your fund’s accounts are sufficiently arranged in accordance with your SMSF plan. They may also assist in preparing both their annual fiscal position and operating statements.

Tax Agent

Tax agents are experts in tax law, and are a smart choice for anyone without the necessary skills or resources to guarantee that all of their SMSF decisions are in accordance with relevant legal standards. Tax agents are capable of drawing and lodging your fund’s annual return, supporting you in your communications with the Australian Taxation Office, and providing general advice regarding tax law and your fund. Before retaining a tax agent, though, it is advised that you refer to the Tax Practitioners Board and ascertain whether your professional of choice is registered.

Fund Administrator

Fund administrators are professionals in the administration of your self-managed super fund. The fund administrator’s primary role is to act as an overseer of the daily tasks and management of your SMSF. They guide you in the fulfillment of your general SMSF duties, ensuring that you meet your reporting and administrative commitments.

Financial Advisor

Financial advisors often play a significant role in organising and administering the investments and investment strategies of SMSFs. Arranging investments with secure and smart returns is a complex and exerting task that calls for a great deal of skill and experience if it is to be successful. The support of a financial advisor is a good idea for those that do not have a strong financial background or are not familiar with the various methods of investing. Financial advisors are also helpful in identifying the insurance products that will be most useful for you. Kingston & Knight have professional Melbourne experts that ensure that the financial advice provided is right for you. Contact us today on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

Appointing an Approved SMSF Auditor

Auditing your fund is an essential step in the long-term management of your self-managed super fund. It is important to note here that whilst hiring the professionals, appointing an approved SMSF auditor is a requirement. The auditor is in charge of ensuring that your SMSF is in compliance with any relevant laws and certifying that your financial statements are accurate. Following the rules and appointing an auditor ensures that you achieve any tax concessions on your investment income to which you are entitled.

An approved SMSF auditor means that your fund’s auditor must be officially registered with the Australian Securities and Investments Commission (ASIC). If your auditor is registered, you will need to access their SMSF auditor number. Once you have their number, you are required to disclose it on your annual return. When appointing an auditor you must also keep in mind that they have to be financially indifferent to your fund. In other words, you may not retain an auditor that has any financial interest in your SMSF. In this vein, the auditor is also disallowed from being someone with whom any members or trustees of the fund have a personal relationship or close business relationship. Kingston & Knight have the professionals for your Self Managed Super Fund and are registered with ASIC. Contact us now on (03) 9863 9779 or email us on admin@kingstonknight.com.au.

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